Homebuilders ETF at Pivotal Juncture

March 20th at 1:25pm by Tom Lydon

The SPDR S&P Homebuilders ETF (NYSEArca: XHB) is up just over 1% in the past month after showing signs of a breakout in February.

Trading in the $33 to $34 area for much of the past month, XHB resides around multi-year highs, but the $2 billion ETF is a noteworthy member of a group of funds that, despite a strong bull market for U.S. stocks in recent years, have come nowhere close to recapturing pre-financial crisis highs. [These ETFs Aren't All the Way Back]

Although Lennar (NYSE: LEN), XHB’s sixth-largest holding at a weight of 3.43%, delivered solid quarterly results before the opening bell Thursday, XHB is trading slightly lower after the National Association of Realtors said existing home sales dipped 0.4% last month.

Some analysts see a cautionary tale for XHB as shares of homebuilders now look richly valued, reports Victor Reklaitis for MarketWatch.

XHB is an equal-weight ETF and while it does hold shares of homebuilders, it also mixes in derivatives plays like USG (NYSE: USG), Lumber Liquidators (NYSE: LL), Whirlpool (NYSE: WHR) and Pier One (NYSE: PIR). That provides the ETF some exposure to the retail side of residential real estate, making the fund a discretionary play as well. http://www.etftrends.com/2014/01/a-tale-of-two-homebuilder-etfs/

Should shares of homebuilders enter a prolonged run of weakness, XHB would be vulnerable, but the iShares U.S. Home Construction ETF (NYSEArca: ITB) would be even more so.

The $1.6 billion ITB is the purer homebuilders ETF with Dow component Home Depot (NYSE: HD) being the only member of ITB’s top-10 lineup that is not a homebuilder. ITB’s top-10 lineup is 62.6% of the ETF’s weight.

SPDR S&P Homebuilders ETF

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of XHB.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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