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Tale of 2 Homebuilders ETFs - ITB, XHB



July 29, 2011 – Comments (1) | RELATED TICKERS: ITB , XHB

Thank you to a recent fool article (“Potential Opportunity in an Ugly Industry”) suggesting Homebuilders ETFs: I think that this is a brilliant idea. These stocks have been clobbered, and a classic case of “buy low, sell high”. I did not know that this is covered by ETFs. What if I choose the wrong one? I am partially protected just in case one of them ends up floating upside down in the fishbowl. I found only 2 such ETFs (if there are more, please let me know via the “reply” box below?).

XHB - SPDR S&P Homebuilders

Thanks to a recent Fool article (“7 Surprising ETF Holdings: Why Investors Should Always Look Under the Hood”) that reminds us to do our due diligence. Do not simply click the “Buy” button with your mouse based just on the name of an ETF (or mutual fund) assuming that you know what is included in your aggregated investment. You gotta look under the hood to see if you are getting a Hemi or a hamster wheel. In this case, I think the latter: you get mucho exposure to building material suppliers and home furnishings, but not much from folks who actually build homes.

ITB - iShares Dow Jones U.S. Home Construction Index Fund

Assuming that my 99¢ calculator has not failed me, the following stocks take up 45% of this ETF: NVR, DR Horton, Toll Brothers, Lennar, Pulte, and KB Home. These are the folks that buy land, build houses, and resell them to folks pursuing the American Dream. They have been clobbered since the banking meltdown in the fall of 2009, but are sure to bounce back, eventually. Indeed, if you put SPY, XHB, and ITB on a comparison chart, you will see that XHB tracks SPY fairly closely. However, ITB is on a line that goes straight down: this is the one I want. I have added it to my Fool portfolio, and will add it to my real portfolio, hopefully when it drifts down further but before it bounces back up to the stratosphere (OK, maybe I should just buy it and not try to time the market).

SPDR S&P Homebuilders

1 Comments – Post Your Own

#1) On July 29, 2011 at 6:08 PM, leohaas (29.35) wrote:

Indeed, if you want exposure to homebuilders in an ETF, and you want as little as possible other companies such as suppliers, you need to get into ITB.

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