Homebuilder ETFs have been sitting on the fence early this
earnings season. While a frigid winter with temperatures touching
the lowest in a decade passed by and the spring selling season
arrived to cheer investors, not-so-encouraging data points soured
their mood to an extent (read:
The Comprehensive Guide to Housing ETFs
On the bullish sides, all homebuilder stocks rallied on April 24
D. R. Horton (
posting the steepest gain of 8.34% (though the stock fell 2.77% the
very next day) amid mixed-bag sector results this quarter. D.R.
Horton's sales climbed 22%, earnings expanded about 19%, gross
margins grew 210 bps and net sales orders rose 9%.
D. R. Horton's adjusted earnings of $0.38 per share in the second
quarter of fiscal 2014 beat the Zacks Consensus Estimate of $0.34
by 11.8% while its revenues of $1.70 billion climbed 22.3% year
over year and surpassed the Zacks Consensus Estimate of $1.61
billion by 5.6%.
This optimistic result foreshadowed what was to come for the entire
space as well. Prior to this,
Lennar Corp. (
too came up with strong results outperforming their respective
Zacks Consensus Estimates.
Some analysts touted that 'cautious' optimism propelled the recent
rally and put most of the blame for many players' underperformance
in Q1 on inclement weather, hinting at otherwise decent underlying
fundamentals of the industry.
Moreover, even when the U.S. was muddling through the record
chills, new building permits rose 7.7% in March, their highest rate
since October, and more importantly, the second highest rate since
the middle of 2009. All these have contributed to the positive
vibes in the homebuilder ETFs late last week.
There is bearish note as well though. Of the entire pack, only DHI
outstripped the Zacks Consensus Estimate on both lines, while
Meritage Homes (
fell short of the expectations and noticed a decline in orders.
Sales of both new (down 14.5%) and existing homes dropped in March
Are Housing ETFs in Trouble?
Higher prices for even low-end segments and sluggish inventories
have held back the housing market's recovery. Per a Sterne
Agee analyst, stringent mortgage underwriting standards were the
concerns of the industry.
Thanks to wavering industry dynamics, associated stocks gained or
lost mainly on their inherent strength or weakness. Investors
should also note that on April 25, some of the stocks shed their
earlier gains on broader market weakness.
LEN rose 1.53% last week, KBH lost 3%, DHI gained 4.21%, PHM fell
1.50%, NVR was up 0.04% and MTH plunged 9.6%. All these stocks have
decent weights in the ETFs like
SPDR S&P Homebuilders ETF (
iShares U.S. Home Construction ETF (
PowerShares Dynamic Building & Construction Fund
All three ETFs currently have Zacks ETF Rank of 3 (Hold) with a
high risk outlook and the above-mentioned stocks are operating in
an industry which stands at
of Zack industry classifications. These ETFs are discussed in
XHB in Focus
The most popular choice in the homebuilding space, XHB, follows the
S&P Homebuilders Select Industry Index. The fund manages about
$1.74 billion in assets, and the fund charges 35 bps in fees per
year from investors.
In total, the fund holds about 37 securities in its basket with
none holding more than 3.43% of total assets. In-focus DHI and PHM
have made their place in the top-10 holdings. The product focuses
more on mid cap securities with 50% share, followed by 36% in small
XHB lost 1.56% last week and 4.38% so far this year (read:
Is XHB a Better Housing ETF Play?
ITB in Focus
This fund provides a pure play to the home construction sector by
tracking the Dow Jones US Select Home Builders Index. It holds a
small basket of 34 stocks and is heavily concentrated on the top 10
holdings with about 50% of total assets. LEN gets the top priority
in the portfolio with about 9.98% of focus followed by DHI (9.66%)
and PHM (9.48%).
The fund is skewed toward mid cap securities (60%), followed by
small cap (29%), and charges 45 bps in fees and expenses. The
product is rich with AUM of nearly $1.60 billion.
The ETF was off 0.63% last week (read:
3 Sector ETFs Benefiting from Plunging Interest
PKB in Focus
This product follows the Dynamic Building & Construction
Intellidex Index, holding 30 stocks in its basket. The fund has
managed assets worth $125.7 million while it sees light volume, and
the net expense ratio comes in at 0.63%.
The product is somewhat concentrated on the top 10 firms at under
47% of total assets. Here again, the ETF is tilted toward mid caps
which make half of the portfolio while small and large caps take
the remainder. PKB was down 1.42% last week.
No doubt the homebuilding sector remains gridlocked presently,
badly waiting for some positive drivers. The supply scenario must
improve to bring things back in course. The first-quarter was
really slow and many are hoping for a better Q2 as
construction of new condominiums
is increasing, new projects are flourishing and foreign buyers are
willing to invest in the sector.
If you anticipate this case, consider the aforementioned ETFs for
some quality exposure to this corner of the investing world as you
can always rule out company-specific risk through the basket
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D R HORTON INC (DHI): Free Stock Analysis
ISHARS-US HO CO (ITB): ETF Research Reports
KB HOME (KBH): Free Stock Analysis Report
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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