Best Home Builder ETFs for Q4 2022

Investing News

The homebuilding industry consists of companies involved in the construction and improvement of residential homes. It features homebuilder stocks like D.R. Horton Inc. (DHI), Lennar Corp. (LEN), and NVR Inc. (NVR), as well as well-known home improvement retailers Home Depot Inc. (HD) and Lowe’s Companies Inc. (LOW).

Investors closely watch the homebuilding industry as a barometer of the direction of the economy and business cycle. Exchange-traded funds (ETFs) may present a useful way to gain broad exposure to this industry without taking on the risk associated with investing in individual stocks.

Key Takeaways

  • The homebuilding industry sharply underperformed the broader U.S. stock market over the past year.
  • The homebuilder exchange-traded funds (ETFs) with the best one-year trailing total returns are HOMZ, XHB, and PKB.
  • The top holdings of these ETFs are Lowes Cos., Mohawk Industries, and Tractor Supply Co.

There are four homebuilder ETFs that trade in the United States, excluding inverse and leveraged ETFs. The homebuilding industry, as measured by the S&P 1500 Homebuilding Sub-Industry Index, has sharply underperformed the broader market over the past 12 months, with a total return of -24.9% compared with the S&P 500’s total return of -0.5%, as of May 6, 2022. The best-performing homebuilder ETF for the third quarter (Q3) of 2022, based on performance over the past year, is the Hoya Capital Housing ETF (HOMZ). We examine the top three homebuilder ETFs below. All numbers below are as of May 9, 2022.

  • Performance Over One-Year: -9.8%
  • Expense Ratio: 0.30%
  • Annual Dividend Yield: 2.62%
  • Three-Month Average Daily Volume: 14,952
  • Assets Under Management: $47.6 million
  • Inception Date: March 19, 2019
  • Issuer: Pettee Investors

HOMZ targets the Hoya Capital Housing 100 Index, an index composed of 100 companies considered likely to benefit from rising rents, appreciating home values, and a persistent shortage of housing. The ETF provides diversified exposure to the U.S. residential housing industry. HOMZ’s holdings are composed of homebuilders, home improvement companies, and real estate services and technology firms. The fund follows a blended strategy of investing in a mix of growth and value stocks. HOMZ’s top three holdings are Lowe’s Companies and Home Depot, both described above; and American Campus Communities (ACC), a developer of campus buildings and student housing.

  • Performance Over One-Year: -21.0%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.52%
  • Three-Month Average Daily Volume: 4,824,845
  • Assets Under Management: $1.25 billion
  • Inception Date: Jan. 31, 2006
  • Issuer: State Street

XHB gives investors exposure to the U.S. homebuilding industry by tracking the S&P Homebuilders Select Industry Index, which represents the homebuilding subindustry portion of the S&P Total Market Index. The ETF uses an equal-weight approach in which companies with larger and smaller market capitalizations are given similar exposure. XHB also follows a blended strategy, investing in a mix of growth and value stocks. The fund’s largest allocation is in companies that provide building products, followed by homebuilders and home improvement retailers. XHB’s top three holdings are Mohawk Industries (MHK) , a flooring manufacturer; Owens Corning (OC), a maker of insulation, roofing and related materials; and Whirlpool Corp. (WHC), a home appliance manufacturer.

  • Performance Over One-Year: -21.5%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.22%
  • Three-Month Average Daily Volume: 47,487
  • Assets Under Management: $158.9 million
  • Inception Date: Oct. 26, 2005
  • Issuer: Invesco

PKB offers exposure to the U.S. homebuilding industry, and as such offers exposure to a corner of the domestic economy that tends to be cyclical in nature. In addition to pure play homebuilders, this fund includes companies related generally to the homebuilding industry. PKB might have appeal for investors looking for exposure to homebuilders who believe the methodology used by the underlying index—which utilizes quant-based stock screens—is capable of generating alpha. For homebuilder exposure PKB makes sense for those looking to avoid cap-weighting, though options such as XHB are cheaper. PKB’s top three holdings are lawncare and home improvement store, Tractor Supply Co. (TSCO); construction materials firm, Vulcan Materials (VMC); and Home Depot.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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