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.
“With the notable rise in the 10-year Treasury yield, mortgage rates have also moved higher. When you combine this with the disappointing earnings results out of Home Depot, this raises concerns about homebuilding stocks,” according to CNBC.
Regarding ITB, the ETF has been in a lengthy slump and is dangerously close to entering a bear market.
“The ITB was already underperforming the rest of the stock market. In fact, it has spent most of the past 2½ months in correction territory and now stands 18 percent below its January highs,” reports CNBC. “Even more critically, it is testing the key $38 support level. It has tested this line many times since early March, so if it finally breaks below that line in any meaningful way (which would also take it below its 200-day moving average), it would be quite negative for the group.”
For more information on the housing market, visit our homebuilders category.