Is SPDR S&P Homebuilders ETF (XHB) a Strong ETF Right Now?
Smart Beta ETF report for XHB
Launched on 01/31/2006, the SPDR S&P Homebuilders ETF (XHB) is a smart beta exchange traded fund offering broad exposure to the Industrials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is sponsored by State Street Global Advisors. It has amassed assets over $2.52 billion, making it one of the larger ETFs in the Industrials ETFs. This particular fund seeks to match the performance of the S&P Homebuilders Select Industry Index before fees and expenses.
The S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is a modified equal weight index.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for XHB are 0.35%, which makes it one of the least expensive products in the space.
XHB's 12-month trailing dividend yield is 0.51%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 58.50% of the portfolio, the fund has heaviest allocation to the Consumer Discretionary sector; Industrials and Energy round out the top three.
When you look at individual holdings, Lowe's Companies Inc. (LOW) accounts for about 4.21% of the fund's total assets, followed by Home Depot Inc. (HD) and Builders Firstsource Inc. (BLDR).
Its top 10 holdings account for approximately 39.27% of XHB's total assets under management.
Performance and Risk
So far this year, XHB has added roughly 50.10%, and is up about 45.89% in the last one year (as of 12/29/2021). During this past 52-week period, the fund has traded between $56.77 and $86.27.
XHB has a beta of 1.39 and standard deviation of 32.29% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.
SPDR S&P Homebuilders ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Invesco Dynamic Building & Construction ETF (PKB) tracks Dynamic Building & Construction Intellidex Index and the iShares U.S. Home Construction ETF (ITB) tracks Dow Jones U.S. Select Home Construction Index. Invesco Dynamic Building & Construction ETF has $297.23 million in assets, iShares U.S. Home Construction ETF has $3.21 billion. PKB has an expense ratio of 0.60% and ITB charges 0.41%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
Lowe's Companies, Inc. (LOW): Free Stock Analysis Report
The Home Depot, Inc. (HD): Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR): Free Stock Analysis Report
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
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