Homebuilder-related ETFs extended their losing streak, with home constructions stocks suffering through their worst seven-day run in two years.
The iShares U.S. Home Construction ETF (NYSEArca: ITB), the largest homebuilder-related ETF, was 1.0% lower Wednesday and declined 6.1% over the past week.
James Stack of Stack Financial Management recently said people “don’t want to hear talk” about housing prices “being a little bit bubblish” and suggested “it is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” Bloomberg reports.
Brian Lazorishak, senior portfolio manager for Stack Financial Management, argued that the recent losing streak may be attributed to profit-taking in one of the market’s hottest sectors, along with growing concern over rising mortgage rates as yields on benchmark 10-year Treasuries now hover around 2.72%.
“It does look a little more serious than anything we’ve seen in a while, but it’s too soon to pass much judgment,” Lazorishak said.
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.