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A Broader Way to Build Housing-Sector Exposure

SPDR S&P Homebuilders ETF--which also holds home-furnishing, building-products, and home-retailer stocks--is a low-cost way to invest in a sector with positive potential.


Bob Goldsborough: For inexpensive exposure to the United States' homebuilding sector, one exchange-traded fund that investors can consider is SPDR S&P Homebuilders ETF (XHB). It's far and away the largest homebuilding ETF, and it holds homebuilding companies, building-products manufacturers like Masco (MAS), home-furnishing retailers, and home-improvement retailers like Home Depot (HD) and Lowe's (LOW).

Since the start of the year, the homebuilding sector has posted mixed data. However, there are some clear conditions in place that offer the sector the potential to perform well looking ahead. These include still-tight home inventories, cheap credit, growth in the household formation rate, and strong employment trends.

Some of the concerns regarding the sector include home prices growing more rapidly than workers' wages, potential for an interest-rate hike from the Federal Reserve, and recent weak housing-start data. Overall, Morningstar's equity analysts take a positive view toward the homebuilding sector.

When choosing a homebuilding ETF, price is an important consideration as all such funds tend to perform similarly. XHB charges an annual fee of 35 basis points, which is more than 25% less than its closest peer.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.