ETF Trends
ETF Trends

We see a lot of V-shaped bounces out there in different segments of the equity markets since the brief October stock market carnage, and one of the leaders in “V’s” looks to be the Homebuilders and Construction sector.

ITB (iShares U.S. Home Construction, Expense Ratio 0.46%) is now the largest ETF in this segment, narrowly edging out XHB (SPDR Homebuilders, Expense Ratio 0.35%) by a small margin ($1.57 billion versus $1.50 billion in AUM).

ITB has risen impressively from its mid-October lows to current levels, which mark its July levels but like XHB, volume in these funds has been significantly below its averages in the past 7-10 sessions.

Both funds have actually seen net outflows year to date, but to a lesser extent ITB. ITB has seen about $148 million leave the doors in 2014 but XHB has seen $400 million rotate out.

There are two much smaller alternatives in the Homebuilder/Construction space as well, PKB (PowerShares Dynamic Building &
Construction, Expense Ratio 0.63%) and FLM (First Trust ISE Global Engineering and Construction, Expense Ratio 0.70%) which have only about $61.9 million and $13.5 million in assets under management respectively.

One takeaway that the model manager should have when browsing through these long only choices in this space, is that no underlying index is created equally, despite the fund titles perhaps sounding similar in some respects.

For example, ITB has greater exposure to “Homebuilders, pure” than XHB, which has names among its top ten weightings that are more associated with home furnishings or appliances such as WHR, LEG, and HD for example.

FLM, as noted in its fund name, has a focus on Engineering as well as Homebuilders, and if you examine the top few holdings inside of it, this is apparent, as is its global scope and exposure (whereas ITB and XHB have 96-98% of their assets invested in U.S. based companies).

FLM carries sizable weightings to Europe (>30%) and Japan (>25.9%) and has exposure to lesser known companies in the form of ordinary shares.

Given the volatility in the past month or so in the greater Homebuilders/Construction space we would think that leveraged/inverse Bull and Bear funds would thrive and have a potential audience here, but we do not see any alternatives here currently offered by issuers.

iShares U.S. Home Construction ETF