The construction industry has displayed considerable resilience amid broader macroeconomic headwinds this year. Despite challenges in the U.S. economy, construction activity has continued to thrive, reinforced by various factors driving both residential and nonresidential construction spending.
In August, total construction outlays increased by 0.5%, marking the eighth successive month of improvement in 2023. Year-over-year, this amounts to a substantial 7.4% gain. This continued growth reflects the sector's robust performance, despite high inflation and interest rates.
Such improvement puts ETFs like SPDR S&P Homebuilders ETF XHB, iShares U.S. Home Construction ETF ITB, Invesco Building & Construction ETF PKB and iShares U.S. Infrastructure ETF IFRA in focus. Builders have reaped gains from relatively stable material prices, with the Producer Price Index for construction materials and components falling 0.2% over the year in August.
Single-Family Housing Fuels Residential Construction
One of the standout contributors to construction spending has been the single-family housing market. The surge in activity in this category (which is reeling under inventory crisis for long) has boosted residential construction spending, which recorded its fourth consecutive monthly increase in August, rising by 0.6%. Meanwhile, multifamily construction has shown signs of moderation as a substantial number of apartment units are scheduled for delivery in the coming years.
Nonresidential Sector Driven by Manufacturing and Infrastructure
The nonresidential construction sector has seen steady improvement, with total outlays increasing for 15 months in a row, rising by 0.4% in August. Key drivers behind this growth have been private manufacturing projects and public nonresidential spending.
Private construction spending has exhibited mixed results, with robust performance in areas such as lodging and manufacturing, while spending in sectors like retail and warehousing has declined. On the public side, a surge in conservation spending and investments in infrastructure projects related to power, highways & streets, and transportation has aided the sector. These categories together made up 75% of the monthly increase in public nonresidential outlays.
ETFs to Win
Against this backdrop, below we detail a few homebuilding and construction ETFs that could be up for gains.
SPDR S&P Homebuilders ETF (XHB)
The underlying S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. No stock makes up more than 4.16%R of the fund. The fund charges 35 bps in fees.
iShares U.S. Home Construction ETF ITB
The underlying Dow Jones U.S. Select Home Builders Index is a subset of the Dow Jones U.S. Household Goods Index. It is a free-float adjusted market capitalization-weighted index. It measures the performance of the home construction sector of the U.S. equity market. The fund charges 40 bps in fees.
Invesco Building & Construction ETF PKB
The underlying Dynamic Building & Construction Intellidex Index is comprised of stocks of U.S. building and construction companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. No stock accounts for more than 5.26% of the fund. The fund charges 57 bps in fees.
iShares U.S. Infrastructure ETF IFRA
The underlying NYSE FactSet U.S. Infrastructure Index comprises of equities of U.S. companies that have infrastructure exposure and that could benefit from a potential increase in domestic infrastructure activities. No stock accounts for more than 0.91% of the fund. The fund charges 30 bps in fees.
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Get it free >>SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
Invesco Building & Construction ETF (PKB): ETF Research Reports
iShares U.S. Infrastructure ETF (IFRA): ETF Research Reports
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