ETFs tracking shares of home builders and related fare have
been among the best performers at the sub-sector level this year.
The SPDR S&P Homebuilders ETF (NYSE:
) looks good with a year-to-date gain of almost 46 percent. Under
normal circumstances, a 46 percent year-to-date gain would look
great, but XHB must be measured against its nearest rival, the
iShares Dow Jones U.S. Home Construction Index Fund (NYSE:
). That fund is up more than 66 percent this year.
Both ETFs are home to stocks such as Lennar (NYSE:
), Home Depot (NYSE:
) and Lowe's (NYSE:
), but there might be another way for investors to get exposure
to a rebounding housing market.
"With a large number of factors making us believe that a
recovery has started in the overall housing market, particularly
in the area of existing home sales, the Building Products
sub-industry has outperformed the broad market by a wide margin
to date in 2012," S&P Capital IQ said in a research note.
"Through October 5, the S&P Building Products sub-industry
index recorded a 40.0% gain, which far exceeded the 15.8% rise
seen in the S&P 1500 Index during that period."
Improving housing data has lifted ITB, XHB and shares of
select building products firms. These stocks along with the likes
of Home Depot, should continue to benefit from increased spending
on home improvement. S&P Capital IQ offers up an interesting
way of getting exposure to these themes: The Industrial Select
Sector SPDR (NYSE:
), which the research firm rates Overweight.
"XLI is composed almost entirely of Industrials companies, a
part of which are in the Building Products category, although no
Building Products companies are part of XLI's top 10 holdings.
The ETF gains its overall Overweight ETF ranking from positive
scores for inputs such as S&P STARS, S&P Quality Rank,
and expense ratio," S&P said in the note.
XLI, which has $3.41 billion in assets under management,
devotes almost 13.6 percent of its weight to General Electric
). Four other Dow components - United Technologies (NYSE:
), 3M (NYSE:
), Caterpillar (NYSE:
) and Boeing (NYSE:
) combine for nearly 19 percent of the fund's weight. A home
builder's ETF this is not.
However, as S&P noted, XLI has a exposure to the home
improvement cycle and it does offer some exposure to a rebound in
commercial real estate, as well.
"In addition to demand for building products in residential
markets, we see somewhat better trends in commercial building
aiding the sub-industry. Expenditures in commercial building had
slowed notably from 2008's second half until recent periods,
limited by weak economies and tight credit markets. Yet, we think
stabilization is now being seen in this area, on an improvement
in global economies (outside of what we view as a current soft
patch) and aggressive efforts to industrialize emerging markets,
with building-related sales rising solidly in emerging markets,"
S&P said in the note.
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