A Different ETF Avenue to a Housing Recovery

Homebuilders stocks and exchange traded funds face a dichotomy. On one hand, there are obvious headwinds facing the industry, notably the lowest rate of U.S. home ownership since 1994 and depressed purchase levels among younger Americans.

On the other hand, some analysts see lower oil prices reducing input costs for homebuilders and low interest rates, which facilitate low mortgage rates, potentially stoking a new wave of home buying. Household durables companies and the ETFs that hold some of those names have been highlighted as tactical avenues for consumer discretionary sector exposure.

“There is, nonetheless, a divergence in gross margins and profitability among household durables sub-industries, with the biggest outlier found in the homebuilders. Not only do homebuilders have the lowest gross margins, they are also among the most volatile over the business cycle,” said S&P Capital IQ in a new research note. [A Foundation for Homebuilders ETFs]

The PowerShares S&P SmallCap Consumer Discretionary Portfolio (NasdaqGM: PSCD) is one such idea. PSCD, which tracks consumer discretionary sectors from the S&P SmallCap 600 Index, features an almost 11% weight to household durables names, making that group the ETF’s fourth-largest industry weight.

“Household durables also make up 11% of PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD). Smaller companies such as household appliance company iRobot (IRBT) and homebuilder Ryland Group (RYL) are among those in the ETF,” said S&P Capital IQ.