Homebuilder ETF 'ITB' 1st Half's Top Performer

July 03, 2012

ITB is the top-returning U.S. ETF in 2012's first half, amid possible signs of a housing recovery.


The iShares Dow Jones U.S. Home Construction Index Fund (NYSEArca: ITB) was the best-performing ETF in the first half of 2012, tagging on gains of nearly 42 percent, as the housing market slowly began to show signs of a recovery.

The SPDR S&P Homebuilders ETF (NYSEArca: XHB) was another top-10 performer in the six-month stretch ended June 30, but XHB tallied only 25.7 percent in gains amid net inflows of $264 million.

The latest monthly S&P/Case Shiller Home Price Index data, released June 26, showed that home prices in April ticked up after dropping for seven straight months. Citing improving demand for homes and a pickup in housing starts, the report was the first in several months to suggest that perhaps housing might have found a true bottom.

Real estate was at the center of the 2008 credit crisis that sent the U.S. economy into a deep recession, but residential housing prices started declining back in mid-2006. In the six years since then, home values around the country lost roughly a third of their value.

The collapse has left home prices across the country, on average, at their 2003 levels. While the price tag on a home is still the lowest it’s been in more than a decade in many U.S. cities, lately there are signs of light at the end of the tunnel, and the two ETFs—ITB and XHB—appear to be out ahead of that incipient trend.

The Two Funds

ITB, which owns bona fide homebuilders like Toll Brothers and Lennar Corp., as well as home improvement retailers Home Depot and Lowe’s, is well positioned to benefit from an improvement in housing demand.

The fund has attracted $242 million in fresh investment since the year started and now has more than $813 million in total assets.

More than 67 percent of the portfolio is directly linked to home construction, and the fund’s top three holdings represent roughly 30 percent of the mix. The remainder of the portfolio includes exposure to other sub sectors such as home improvement and furnishings.

XHB is the bigger of the two, with more than $1.33 billion in assets, but it’s tied to an S&P index that assigns almost identical weightings to its securities, with each individual holding with a weight of around 3.5 percent.

XHB, like its competitor, also owns names like Home Depot, Lowe’s and Lennar Corp.—among others.

But XHB allocates less than a third of its overall portfolio to homebuilding names. Instead, home improvement retail, furnishings and home furnishing retail are listed as segments that, together, represent just over a third of the overall mix.

That different weighting to homebuilders is a key distinction between ITB and XHB, plus XHB gives each of its constituents equal weighting.

A Rocky Road

Still, it’s worth noting that despite their sharp rises, the ETFs haven't been on a straight upward path. Their volatile price action is a good metaphor for the uncertain reality the housing market faces.



Just over a month ago, for instance, ITB topped $15.90 a share, only to give up nearly 14 percent of those gains in just four days. What came next was an almost-reluctant rally that pushed the ETF to trade at $16.95 a share Monday, its highest level since September 2008. ITB closed Tuesday at $16.90 a share.

XHB has had a similarly volatile performance, and while it closed Tuesday, July 3, at a one-month high of $21.61 a share, the fund is still 2.7 percent off the recent high of $22.21 hit in late May—at the time, its highest share price since late 2008.

XHB is the slightly cheaper of the two ETFs, with an annual expense ratio of 0.35 percent, compared with ITB's annual cost of 0.47 percent.


Top 10 Performers YTD (Excluding Leveraged and Inverse as well as 2012 launches)

Ticker Name YTD TRR YTD Flows ($,M) AUM ($,M)
ITB iShares Dow Jones U.S. Home Construction 41.86 242.17 806.84
FBT First Trust NYSE Arca Biotechnology 34.14 6.17 249.95
XBI SPDR S&P Biotech 33.24 76.13 641.43
EGPT Market Vectors Egypt 32.88 -5.64 41.37
TUR iShares MSCI Turkey Investable Market 29.81 -34.71 406.83
BBH Market Vectors Biotech 29.43 21.47 105.89
EPHE iShares MSCI Philippines Investable Market 27.56 52.86 143.66
VNM Market Vectors Vietnam 26.25 59.93 301.30
XHB SPDR S&P Homebuilders 25.72 264.43 1,361.99
IBB iShares NASDAQ Biotechnology 24.75 212.64 1,962.16

Bottom 10 Performers YTD (Excluding Leveraged and Inverse as well as 2012 launches)

Ticker Name YTD TRR YTD Flows ($,M) AUM ($,M)
KWT Market Vectors Solar Energy -29.27 -4.15 0.63
GLDX Global X Gold Explorers -29.12 13.88 28.08
JO iPath Dow Jones-UBS Coffee Total Return ETN -27.76 9.47 27.06
CAFE iPath Pure Beta Coffee ETN -26.47 1.00 2.42
ARGT Global X FTSE Argentina 20 -26.36 0.00 2.84
TAN Guggenheim Solar -25.75 13.52 50.25
UNG United States Natural Gas -25.35 284.41 1,117.03
CTNN iPath Pure Beta Cotton ETN -23.95 1.05 2.47
KOL Market Vectors Coal -23.94 -96.40 174.70
GDXJ Market Vectors Junior Gold Miners -22.23 722.03 2,120.45


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