On April 2nd we highlighted put activity in SPDR S&P Homebuilders ETF (NYSEArca: XHB) when the ETF was trading with a $21 handle. XHB has traded as low as $19.92 since then but has regained some strength, closing yesterday at $20.52. [ETF Chart of the Day: Homebuilders]
However, with one of the top components, Tempur Pedic International Inc. (NYSE: TPX) (3.62% weighting) releasing disappointing earnings after the bell yesterday and sinking notably in after-hours trading, XHB may be hit today to some degree. Additionally, another firm in the mattress manufacturing business, and a peer of TPX, Select Comfort Corporation (NasdaqGS: SCSS), reported earnings after the bell on Wednesday, and the stock was down more than 4% in yesterday’s session.
It is possible that the put buying that we witnessed earlier this month was outright bearish speculation in anticipation of weak earnings reports from top components in the index and/or hedging activity from long holders of XHB.
This brings to light the fact that XHB is not a pure “homebuilders” ETF despite the fund’s title, but rather it has significant exposure to equities that are involved in the manufacture and sale of “home related” items such as TPX and SCSS for example.
Additionally, other top weightings in the index include names such as USG Corporation (NYSE: USG), Bed Bath & Beyond Inc. (NasdaqGS: BBBY), The Home Depot, Inc. (NYSE: HD), Lowe’s Companies Inc. (NYSE: LOW), and others that are certainly not “homebuilders.” XHB may be more of a play on retailers based on its underlying index makeup, more so than a way to gain true exposure to homebuilders.
For those who truly want to isolate firms that are directly involved in the manufacture of homes, iShares offers iShares Dow Jones U.S. Home Construction Index Fund (NYSEArca: ITB). The top five holdings, Lennar Corp. (NYSE: LEN) (10.23%), DR Horton Inc. (NYSE: DHI) (9.46%), Toll Brothers Inc. (NYSE: TOL) (8.18%), NVR Inc. (NYSE: NVR) (8.12%), and PulteGroup, Inc. (NYSE: PHM) (8.02%), are all truly homebuilders, and collectively make up 35% of the total index. There are some “non-homebuilders” in the index, including HD and LOW for example, but the makeup of the index on the whole is much more tilted towards the pure homebuilders than XHB. [Best ETFs for Homebuilders]
iShares Dow Jones U.S. Home Construction Index Fund