Homebuilder ETFs Extend Their Suffering

The housing market has enjoyed robust growth over the past year, with ITB surging 48.8% over the one-year period. However, the recent pullback has caused the ETF to pare this year’s gains and even drop 1% year-to-date.

The weakness may be only focused in the home construction segment as the competing ETF, the SPDR S&P Homebuilders ETF (NYSEArca: XHB), only fell 3.6% over the past week and remains up 1.8% year-to-date.

Looking at the underlying holdings, we see that ITB includes a hefty 63.6% tilt toward homebuilding, followed by 15.1% building products and 10.5% home improvement retail. On the other hand, XHB follows a more equal-weight indexing approach and only holds 32.1% in homebuilding companies, along with 33.4% building products, 10.2% home furnishing, 10.2% home improvement retail, 8.6% homefurnishing retail and 5.4% household appliances.

The different weighting methodologies also highlight an important point when looking for ETF investments as no two ETFs are the same. Potential ETF investors should take the time and consider underlying holdings and sub-sector weights to better understand how their ETF investments will react.

For more information on the housing market, visit our homebuilders category.