ETF Talk: Is Housing a Sturdy Investment?

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

While last week’s ETF Talk explained how to capitalize on the housing rebound by investing in industrials, today’s article focuses more directly on how to profit from the recovery in housing. One exchange-traded fund (ETF) that is designed to take advantage of the recovery in housing is SPDR S&P Homebuilders (XHB). That fund is worth considering strongly due to an improving labor market and continuing low mortgage rates that are spurring home buying.

This non-diversified fund seeks investment results, before fees and expenses, which correspond to the total return performance of the homebuilding segment of a U.S. total market composite index.

After an astounding 52.52% increase in 2012, XHB has risen 4.49% so far this year. XHB also yields 0.97%, so it offers a bit of income along with the capital appreciation of its share price. In light of the Fed’s easy-money policies, further gains seem likely for housing and housing-related funds.

XHB has holdings in five sectors, though the lion’s share, 70.82%, is in the consumer cyclical sector. The fund’s other noteworthy holdings, basic materials, with 14.72%, and industrials, with 10.41%, are also significant for the housing ETF. XHB’s holdings are rounded out by the technology sector, with 3.16%, and consumer defensive, with 0.88%.

In terms of individual companies held by XHB, the top ten positions comprise 34.23% of the fund’s total assets. Those holdings are led by Hovnanian Enterprises, with 4.09%, the only company with more than 4% of XHB’s assets. The next four top holdings are Standard Pacific Corp, 3.47%; Mohawk Industries, 3.44%; Ryland Group, 3.36%; and Lumber Liquidators, 3.34%.

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Even if the housing rebound is not as robust as many observers predict, public companies in that sector held by XHB should show improved per-share performance, earnings and revenues. The Fed’s continuing easy-money policy, among other regulatory tools to stimulate the economy, should help to sustain the positive outlook for housing builders and related companies in the sector.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

previous article

Unless you’ve traveled to Tokyo recently, you may not have noticed that over the past several months, the value of the Japanese yen has plummeted vs. rival foreign currencies. The yen’s decline is no accident, as the Japanese currency began heading lower right around the time it became apparent that the Japanese people were going to elect Shinzo Abe their new Prime Minister. Indeed, the main plank in Abe’s economic policy was to have the Bank of Japan (BoJ) increase its inflation target

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