Traders have been exiting a homebuilder exchange traded fund in droves as the housing sector weakens. However, investors may just be dumping the homebuilder ETF along with other consumer sector bets.
Investors pulled a record amount of cash from SPDR S&P Homebuilders ETF (NYSEArca: XHB) after the ETF hit an eight-year high in February, Bloomberg reports.
XHB experienced $376.3 million in outflows over April, according to ETF.com. Moreover, short sellers in XHB have increased their bearish bets to the highest level in over six months.
Pressuring the housing market, mixed economic reports are weighing on the growth outlook, and the Federal Reserve’s eventual interest rate hike is also adding on to concerns. [Factors That Are Holding Back Housing, Homebuilder ETFs]
“Housing stocks are in an interesting position right now,” James Gaul, a portfolio manager at Boston Advisors LLC, said in the artlce. “We’re in a bit of a logjam for multiple factors. Until this logjam breaks, it’s going to be hard for national homebuilders to have sustained outperformance.”
However, investors may be exiting XHB as more of a response to potentially weaker consumer spending habits ahead.
XHB follows a more equally weighted indexing methodology, with its largest top ten components making up a little over 3% each, and includes a greater tilt toward consumer sector stocks. Specifically, XHB holds 33.0% homebuilders, 28.9% building products, 16.0% home furnishing retail, 10.0% home furnishing, 6.1% household appliances and 6.1% home improvement retail.
In contrast, the iShares U.S. Home Construction ETF (NYSEArca: ITB), which tracks a market-cap-weighted index, includes heavy tilts toward homebuilders, such as D R Horton (NYSE: DHI) 10.7%, Lennar (NYSE: LEN) 10.5%, Pultegroup (NYSE: PHM) 8.4%, Toll Brothers (NYSE: TOL) 7.6% and NVR (NYSE: NVR) 7.0%. ITB also includes some home improvement names, such as Lowes (NYSE: LOW) 3.5% and Home Depot (NYSE: HD) 4.4%. In April, the larger ITB only lost $71.2 million in assets.
Looking at their recent performances, XHB has declined 3.5% over the past month, whereas ITB declined 6.4%.
The smaller redemptions from ITB and larger outflows form XHB could suggest that ETF investors were pulling more out of XHB because of their growing concerns over consumer spending and related sectors. For instance, over April, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) experienced $261.2 million in outflows while the Consumer Staples Select Sector SPDR (NYSEArca: XLP) saw $479.9 million in outflows.
SPDR S&P Homebuilders ETF
For more information on the housing market, visit our homebuilders category.
Max Chen contributed to this article.