Shares of Lumber Liquidators (NYSE: LL), the maker of hardwood flooring and related products, are off more than 20% today on volume that is already more than 10 times the daily average after a “60 Minutes” report claimed the company’s China-made flooring is unsafe.
The “60 Minutes” report, which used undercover reporting and hidden cameras, found that flooring made by Lumber Liquidators contained excessive amounts of formaldehyde. The report also “found that flooring was billed as meeting California health and safety standards even though it didn’t. Video showed managers at three Chinese factories admitting to using false labeling that made it look like the products met regulations,” according to Bloomberg.
That is enough to make Lumber Liquidators one of the worst-performing stocks in the U.S. today, but the exchange traded funds with exposure to the stock are holding up.
For example, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) is continuing its recently torrid pace today, trading modestly higher in the wake of the Lumber Liquidators imbroglio. The $1.9 billion XHB is the only ETF with exposure to Lumber Liquidators that can be considered notable.
Lumber Liquidators accounted for 2.5% of XHB’s weight as of Feb. 27, making the stock the 30th-largest holding in the equal-weight XHB. The ETF is home to 37 stocks, none of which has a weight in excess of 3.56%. [Short Covering Help for Homebuilders ETFs]
Although it is billed as a homebuilders ETF, XHB has significant exposure to the discretionary side of the residential real estate industry, helping explain the ETF’s 90-day surge of almost 9%. XHB allocates a combined 33.8% of its weight to home furnishings producers, retailers of those products and home improvement retailers. [Discretionary ETF Surges]
XHB’s primary rival, the iShares U.S. Home Construction ETF (NYSEArca: ITB) is trading slightly lower Monday. That ETF has a 0.91% weight to Lumber Liquidators. The PowerShares Dynamic Building & Construction Portfolio (NYSE: PKB) has no Lumber Liquidators exposure and is higher by half a percent today.
SPDR S&P Homebuilders ETF
