Just when the housing market was making a comeback, the sector
disappointed the market by posting a fall in housing starts for
the month January. Housing starts fell by of 8.5% to
890,000 units in January 2013, after a 15.7% surge in
December to 973,000 units (
Housing ETFs Rally on Solid Data
It should be noted that the volatile multi-family unit
category was mostly responsible for the drop in housing start
numbers. The unit plummeted 24.1% in January. Interestingly,
starts for single-family unit rose to its highest level since
July 2008, climbing 0.8%.
Investors should however note that the poor performance in
January primarily emanated from the multi-family units, which
tends to be volatile. The focus should rather be on the
single-family units which continue to gain strength. In fact, the
positive aspect of the story is the rise in permits for future
construction to a 925,000-unit rate (
Best Construction ETF to Ride the Housing
Most probably, February and March start numbers would once
again pull up and add to the evidence that the housing sector is
finally on the path of recovery. Ups and downs are part of the
game and the general trend in the housing market suggests that
this slump is just temporary and the sector will continue with
its growth momentum.
The housing sector should turn out to be the primary driver of
economic growth in 2013. For seven straight quarters spending on
home construction and home improvement activity had a positive
contribution to the economic growth.
However, the fact cannot be denied that much is left to be
done for housing starts to reach their historical levels. Last
year, builders commenced construction on about 780,000 homes, the
highest since 906,000 in 2008 (
4 Best ETF Strategies for 2013
on the News
Both the ETFs tracking the homebuilder segment of the market
iShares DJ US Home Construction (
SPDR S&P Homebuilders ETF (
recorded a sharp fall in prices after the housing start
Notwithstanding the recent weakness, investors looking to
capitalize on 2012's best performing sector should invest in ETFs
that have heavy exposure to the residential real estate market.
And for a direct exposure to U.S. homebuilding companies, ITB
represents an excellent option to play (
Two Sector ETFs to Buy in 2013
ITB offers a pure play into the sector as evidenced by its
allocation of 64.08% of its asset base of $2 billion to home
construction companies. Other sectors that it invests in are
building materials, home improvement and furnishing..
The fund offers exposure to 29 companies, withtablished
homebuilders like Pulte Group, DR Horton Inc and Lennar Corp
making up the top line of the fund.
Although the SPDR ETF is somewhat larger and a more liquid
option to play in the sector, it is probably not the right choice
for investors looking for a direct exposure to residential real
XHB has just 28.79% of its asset base of $2.6 billion in
homebuilding, while the rest is spread across building products,
home furnishing retail, home improvement retail and household
Is XHB a Better Housing ETF Play?
However, related sectors have also reaped the benefits from
the resurgence in housing as exemplified by XHB's performance in
While weak housing start numbers dragged down the prices of
homebuilder ETFs this week, consumer ETFs appear to be under
pressure as well following the leaked Wal-Mart emails that
divulged disastrous sales for the month of February.
An email from Wal-Mart corporate executive revealed
disastrous sales for the month of February, supposedly the
worst start to the month in its seven years of history. It seems
that Wal-Mart's plan to invest in pricing, such as using ads that
compare their prices to a competitor, has failed to improve store
Retail ETFs Looking Good Before Data Release
The bad sales number for the month can also be attributed to a
2% hike in payroll taxes effective from the start of 2013.
Another reason could be the delay in tax return to consumers
which ultimately affected the sales of the company in
Wal-Mart share price slipped 2% on the news during the Friday
trading session. Investors should nonetheless note that the
impressive size of Wal-Mart, from a market perspective, sets it
apart from other retailers. The firm is currently in the top ten
list in terms of market cap and is five times bigger than its
rival Target. On Thursday, Walmart provided weaker sales forecast
for the coming months.
In fact, there are many consumer ETFs in which WMT plays a
dominating role in their performance attributable to its heavy
weighting in the fund including an 11.16% allocation to the firm
Market Vectors Retail ETF (
Beyond this, the
Consumer Staples Select Sector SPDR (
) assigns a weighting of 8.12% to the company and the
Vanguard Consumer Staples Fund (
allocates 8.17% to WMT while a few others also give the company
at least a 5% weight.
Given the uncertainty surrounding Wal-Mart and the company's
uncertain path to growth in the domestic market going forward,
these ETFs with exposure towards the company could prove to be an
unwise choice for investment currently.
Fortunately, there are still a number of ETFs beyond those
listed above that can offer great exposure to the retail or
consumer spaces but can do so without putting so much into WMT (
Lower Wal Mart Exposure With These Consumer
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