Shaky Foundations for Homebuilder ETFs

The iShares U.S. Home Construction ETF (NYSEArca: ITB), the largest homebuilder-related exchange traded fund, is off more than 5% over the past month and recently posted its worst intraday performance in several months.

Some investors are concerned that rising Treasury yields are plaguing homebuilder stocks. Year-to-date, ITB and the rival SPDR S&P Homebuilders ETF (NYSEArca: XHB) are down 14.40% and 12%, respectively.

“A popular homebuilder-tracking ETF, the ITB, posted its worst day in three months on Tuesday, led to the downside by D.R. Horton. This comes on the heels of surging Treasury yields, which traditionally hurt housing stocks,” reports CNBC.

Inside The Funds

ITB is more of a pure play on homebuilders stocks whereas XHB is an equal-weight fund that features significant exposure to consumer discretionary and retail stocks that are tied to the residential real estate trade.

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.