ETF Trends
ETF Trends

Still well below their pre-financial crisis highs, homebuilders exchange traded funds have been perking up this year. Buoyed by favorable fundamental factors, the SPDR S&P Homebuilders ETF (NYSEArca: XHB) and rival funds could build on recent gains.

As it is, XHB is up more than 8% this year, well ahead of the 2.3% gained by the S&P 500. Looking at the fundamentals, the housing market is seeing greater demand. Last month, the National Association of Realtors revealed that existing U.S. home sales rose 5.1% to an annual rate of 5.35 million units in May, its highest level since November 2009, Reuters reported.

The improving economy and concerns over a rate hike in the foreseeable future have pushed more buyers into the housing market. [Rising Mortgage Yields Could Weigh Down Housing Market, Homebuilder ETFs]

“Sales of existing homes in May rose to their highest pace in nearly six years, according to the National Association of Realtors, spurred by demand from first-time buyers.1 At the same time, new US single-family home sales rose 2.2% in May to an annual rate of 546,000—the best monthly increase in seven years, according to the Commerce Department,” said State Street Global Advisors Vice President an d Head of Research David Mazza in a recent blog post.

Consumer confidence and spending are important factors to consider with XHB because the $1.87 billion ETF allocates less than a third of its weight to pure homebuilders stocks. Almost a third of XHB’s weight is devoted to home furnishings and improvement retailers, giving the ETF a distinct consumer discretionary feel. [Homebuilders ETFs Rally]

“Consumer confidence jumped in June, buoyed by an improving job market and income growth, while US homebuilders’ confidence rebounded in June to a nine-month high. The National Association of Home Builders/Wells Fargo builder sentiment gauge rose to 59, the strongest reading since September—exceeding all projections in a Bloomberg survey. High confidence figures set the stage for increased housing demand,” adds Mazza.

The equal-weight XHB mixes stocks such as Tempur Sealy (NYSE: TPX), Williams-Sonoma (NYSE: WSM) and Restoration Hardware (NYSE: RH) with pure play homebuilders such as Lennar (NYSE: LEN) and Toll Brothers (NYSE: TOLL) among others.

Investors have added nearly $312 million to XHB this year.

SPDR S&P Homebuilders ETF