The iShares U.S. Home Construction ETF (NYSEArca: ITB) is up the past three weeks and rallied in the wake of the Federal Reserve’s decision to hold off on tapering its bond and mortgage purchases.
Exchange traded fund investors have some options to capture any continued growth in the homebuilders space, but you have to look at the floor plans first.
Morningstar fund analyst Robert Goldsborough points to ITB as a more pure play on U.S. housing stocks.
Specifically, the ETF’s sector allocations include home construction 61.2%, building materials & fixtures 20.4%, home improvement retailers 13.4% and furnishings 4.5%.
In comparison, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) sector allocations include building products 26.8%, homebuilding 25.4%, homefurnishing retail 16.7%, home furnishings 12.8%, home improvement retail 11.1% and household appliances 7.2%.
Housing stocks rallied after the Fed maintained its accommodative measures, which pressured interest rates. For instance, the 30-year mortgage rate was 10 basis points lower Wednesday week-over-week.
“Homebuilding companies came under serious pressure in mid-2013 from interest-rate jitters, but the Fed’s recent decision to continue with its monetary stimulus has calmed investors for now,” Goldsborough said.
Looking ahead, housing market investors are waiting on the Case-Shiller index and the new earnings season.
Goldsborough also warned that the homebuilders sector is cyclical in nature. The industry has a low barrier to entry and many companies have large lad banks on their balance sheets, which can constrain a large chunk of capital for a long period of time.
iShares U.S. Home Construction ETF
For more information on the housing market, visit our homebuilders category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own XHB.