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The homebuilders sector includes companies that are involved in the construction of residential homes. It features well-known home improvement retailers such as Home Depot Inc. (HD) and Lowe’s Companies Inc. (LOW), as well as homebuilding stocks such as D.R. Horton Inc. (DHI), Lennar Corp. (LEN), and NVR Inc. (NVR). Investors closely watch the homebuilding industry as a barometer of the state of the overall economy and business cycle.
- The homebuilders sector has underperformed the broader stock market over the past year.
- The ETFs with the best 1-year trailing total return are ITB, XHB, and PKB.
- The top holdings for these ETFs include D.R. Horton, Trex, and Tractor Supply, respectively.
Over the past year, the homebuilders sector has moderately underperformed the broader market, with the benchmark S&P Homebuilders Select Industry Index posting a total return of 4.8% versus the S&P 500’s total return of 5.6%. Investors interested in the sector have 3 options to choose from, after excluding leveraged and inverse ETFs, and ETFs with less than $50 million in assets under management (AUM). Many investors favor ETFs as a vehicle for owning a diversified portfolio of companies while paying relatively low fees.
The best homebuilders sector ETF for Q3 2020 is the iShares U.S. Home Construction ETF (ITB). Below, we’ll look at the top 3 homebuilders ETFs as measured by 1-year trailing total returns. All numbers below, except top holdings, are as of June 29, 2020. Top holdings are as of June 30, 2020.
- 1-Year Trailing Total Return: 11.5%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.68%
- 3-Month Average Daily Volume: 3,532,312
- Assets Under Management: $1.4 billion
- Inception Date: May 1, 2006
- Issuing Company: iShares
ITB offers exposure to the homebuilders sector through a combination of home construction companies as well as suppliers to the industry. The fund tracks the Dow Jones U.S. Select Home Construction Index, which focuses on U.S. stocks in the sector. The ETF’s largest holdings are the homebuilders D. R. Horton, Lennar, and NVR. Well-known suppliers Home Depot and Lowe’s are also included. In addition to homebuilding, the companies held by ITB have exposure to other sectors. These include specialty chemicals and home furnishings.
- 1-Year Trailing Total Return: 2.6%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.01%
- 3-Month Average Daily Volume: 2,579,271
- Assets Under Management: $768.7 million
- Inception Date: Feb 6, 2006
- Issuing Company: State Street SPDR
XHB seeks to provide investors with exposure to the U.S. homebuilding industry by tracking the S&P Homebuilders Select Industry Index, which represents the homebuilding sub-industry portion of the S&P Total Markets Index. Unlike ITB, XHB uses an equal-weighted approach in which companies with larger and smaller market capitalizations are given similar exposure. Its three largest holdings are the wood products manufacturer, Trex Company Inc. (TREX); home improvement products designer Masco Corp. (MAS); and Lowe’s.
- 1-Year Trailing Total Return: -5.1%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.45%
- 3-Month Average Daily Volume: 18,666
- Assets Under Management: $73.6 million
- Inception Date: Oct 26, 2005
- Issuing Company: Invesco
Unlike the other ETFs listed above, PKB includes a range of infrastructure construction and engineering service companies, in addition to companies primarily involved in the residential homebuilding sector. Specifically, the PKB typically invests 90% or more of its assets in the Dynamic Building Construction Intellidex Index, which consists of U.S.-based companies involved in construction and related services. Its three largest holdings are home improvement retailer Tractor Supply Co. (TSCO); the HVAC and control systems manufacturer, Johnson Controls International PLC (JCI); and the crushed concrete supplier, Martin Marietta Materials Inc. (MLM).