It seems that the residential construction sector is in a nice
recovery with tremendous upside potential going forward. This
trend, should it continue, will also provide a strong boost to
overall economic growth (
Best Construction ETF to Ride the Housing
Upswing?
).
New residential construction or housing starts reported growth
of 12.1% in December indicating that housing starts are close to
a five-year high. The industry has thus bottomed out and is all
set to surge higher thanks to low-mortgage rates, smaller housing
inventory and a growing population.
With improved buyers' confidence in the market due to modest
housing prices and interest rates, pent-up demand for housing
will be on the rise. This will keep the housing sector in
recovery mode for the next months, if not years (
Three ETFs for the January Effect
).
In fact, homebuilder
ETFs
have been one of the top performing sectors in 2012 attributable
to improving housing and job data. Homebuilder ETFs which
recovered almost 50% in 2012 have continued with their strong
performance in 2013. And with the Fed expected to keep interest
rates low, the sector could continue with its bullish run further
into 2013 (
Housing ETFs Rally on Solid Data
).
For investors maintaining their bullish stance on the broad
housing market, hoping that the segment will continue to book
solid gains further in the year, here we would highlight the
Zacks top ranked ETF providing exposure to homebuilding
companies.
SPDR S&P Homebuilders ETF (XHB) is ranked Zacks Rank 2 or
Buy and we expect it to outperform its peers in a timeframe of
one year meaning it could be an excellent pick for investors
seeking more exposure to this slice of the market.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in
the context of our outlook for the underlying industry, sector,
style box, or asset class. Our proprietary methodology also takes
into account the risk preferences of investors. ETFs are ranked
on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also
receive one of three risk ratings, namely, Low, Medium, or
High.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, the Zacks Rank reflects the expected return of
an ETF relative to other products with a similar level of
risk.
For investors seeking to apply this methodology to their
portfolio in homebuilders, we have taken a closer look at the top
ranked XHB below:
SPDR S&P Homebuilders ETF (
XHB
)
The SPDR S&P Homebuilders ETF, before expenses, seeks to
closely match the returns and characteristics of the S&P
Homebuilders Select Industry Index.
XHB appears to be rich in an asset base of $2.66 billion and
offers liquidity as revealed by its trading volume of more than 7
million shares a day. The fund charges a fee of 35 basis points a
year (
4 Best ETF Strategies for 2013
).
The fund's asset base is spread across 36 securities. However,
it should be noted that investors looking for direct exposure to
residential real estate companies, XHB is not the one they are
looking for.
XHB has just 30.3% of its asset base of $2.7 billion in
homebuilding while the rest is spread across building products,
home furnishing retail, home improvement retail and household
appliances.
Apart from the core housing market there are other sectors
closely allied to it. The positive sentiment for housing has also
influenced these related sectors as evidenced by the performance
of XHB in 2012.
The fund does well to minimize company-specific risk thanks to
its equal weighting. It invests 36.6% of its asset base in the
top ten holdings. Among individual holdings,
Tempur Pedic (
TPX
)
,
Standard Pacific (
SPF
)
, and
Mohawk Industries (
MHK
)
form the top line of the fund with respective shares of 3.89%,
3.80%, and 3.77%.
The fund delivered a return of 5.59% in the year-to-date
period while the 2012 gain was a whopping 57.15% -- a testimony
to the housing market recovery. In fact, in the last few days,
the ETF has been posting solid gains and setting new highs,
suggesting that the future could continue to be bright for this
all-star fund.
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Research? Today, you can download
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.
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MOHAWK INDS INC (MHK): Free Stock Analysis
Report
STANDARD PAC (SPF): Free Stock Analysis
Report
TEMPUR-PEDIC (TPX): Free Stock Analysis
Report
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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