The Q3 earnings season has impressed markets with growth rates
and beat ratios tracking higher than expectations, and outpacing
the past few quarters.
While there have been winners in many corners of the space,
homebuilding and construction is leading the way. The sector has
been the major contributor to both earnings (+36.6%) and revenue
(+21.2%) growth so far, crushing the estimates and providing a
Further, the continuation of the Fed's bond buying program until
the next year and low interest rates are driving the space. This is
because if rates continue to decline or at least hold steady at the
current levels, it would attract more buyers to the market (read:
Yellen as Fed Chairwoman is Great News for These
Thanks to these trends, the homebuilding sector has surged over the
past few days, easily outpacing the broad market in the process.
And with the shares of some homebuilders like PulteGroup (
), D.R. Horton (
), Lennar (
), Toll Brothers (
), Meritage Homes (
) and Beazer Homes (
) on the rise and home sales data looking upbeat of late, the
outperformance could continue for this sector.
New home sales climbed to the highest level in more than two years,
rising 6.4% in September. This suggests increasing consumer
confidence and a strong housing recovery.
How to Play
Investors looking to gain exposure to this trend may want to take a
look at the following ETFs, as these offer concentrated exposure to
homebuilding and construction firms which could be not only winners
this earnings season, but for months to come as well (see:
all the Industrial ETFs here
SPDR S&P Homebuilders ETF (
This is by far the most popular and liquid choice in the
homebuilding space with AUM of over $2 billion and average daily
volume of roughly 6.6 million. The fund follows the S&P
Homebuilders Select Industry Index and charges 35 bps in fees a
In total, the product holds 37 securities with none holding more
than 3.51% of total assets. Securities are nicely spread out across
various market spectrums with mid cap making up for 44%, small caps
comprising 43% and the rest allocated to large caps. In terms of
sectors, homebuilding takes the top position at 30.82%, while
building products and home furnishing retail round off to the next
The fund currently has a Zacks ETF Rank of 3 or 'Hold' rating with
'Medium' risk outlook.
iShares U.S. Home Construction ETF (
This fund follows the Dow Jones US Select Home Builders Index and
holds a small basket of 33 stocks. It is heavily concentrated in
its top 10 firms with 63% of total assets and focuses more on mid
cap securities (60%). PHM, LEN and DHI are the top three holdings
in the fund's portfolio with more than 9% share each.
Further, the product puts more focus on home construction,
indicating that it is a 'pure play' on the space (read:
The Comprehensive Guide to Homebuilders ETFs
). The fund is popular and liquid with AUM of just under $2 billion
and average daily volume of nearly 6.1 million shares. The ETF
charges 45 bps in fees and expenses.
ITB currently has a Zacks ETF Rank of 2 or 'Buy' rating with
'Medium' risk outlook.
& Construction Fund (
This fund tracks the Dynamic Building & Construction Intellidex
Index, which evaluates companies on good investment merits such as
price momentum, earnings momentum, quality, management action and
value. The product has amassed $95.1 million in its asset base
while charging 63 bps in annual fees. Volume is small, trading
under 46,000 shares a day.
The product holds 30 securities in its basket, with top allocations
to Fluor Corp, Ingersoll Rand and Mohawk Industries. These
securities make up for a combined 15.65% share of the ETF.
In terms of market cap, the ETF has a nice mixture of mid caps
(50%), small caps (30%) and large caps (20%). However, the fund is
tilted toward engineering and construction with just less than
one-third share, followed by specialty retail and building
materials with at least 11% share each.
The fund currently holds a Zacks Rank of 3 or 'Hold' rating with a
'Medium' risk outlook (read:
3 Biggest ETF Winners from the 3rd Quarter
Homebuilding and construction has been a strong performer this
earnings season, accounting for a decent chunk of the growth.
Further, the long-term outlook for the sector remains bright thanks
to higher home prices, better home sales data, and drop in mortgage
Given this, the funds highlighted above may likely be beneficiaries
of the Fed's 'no taper' policy as well as recovering housing market
and thus, interesting choices for most investors.
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D R HORTON INC (DHI): Free Stock Analysis
ISHARS-US HO CO (ITB): ETF Research Reports
LENNAR CORP -A (LEN): Free Stock Analysis
PWRSH-DYN BLDG (PKB): ETF Research Reports
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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