Insurance, Homebuilder ETFs Hold Steady as L.A. Wildfires Rage
The ETF sectors most exposed to the deadly devastation in Southern California have so far withstood the wildfires' impact.
As firefighters continue to battle a series of deadly wildfires spreading across Southern California, the total economic toll and recovery will unfold over several years.
With estimates of property and business losses already between $135 billion and $150 billion, or about 10 times larger than the 2023 Maui fire, two industry sectors stand out as being uniquely impacted going forward: homebuilders and property insurers.
The wildfires that have caused at least 24 deaths, have spread over 40,000 acres and destroyed more than 12,000 buildings, have yet to significantly move the needle of exchange-traded funds specifically exposed.
Even against the backdrop of a major surge of new construction activity in the Greater Los Angeles area, the largest homebuilding ETFs are not reflecting signs of bullish investors.
Wildfires Haven’t Reached Homebuilders, Insurance ETFs
The $3.3 billion iShares U.S. Home Construction ETF (ITB) was up less than 1% in midday trading Monday, while the S&P 500 Index fell by about 40 basis points.
It was a similar tale for the $2 billion SPDR S&P Homebuilders ETF (XHB).
The two largest homebuilder exchange-traded funds are coming off strong performances in 2023, when ITB gained 69% and XHB gained 60%. However, that was followed in 2024 by gains of 2% for ITB and 10% for XHB.
Both ETFs are down about 2% so far this year amid a larger market downturn, and each has suffered outflows over the past five trading days, which is roughly the period of the Southern California wildfires.
Chris Chen, wealth strategist at Insight Financial Strategists in Newton, Massachusetts, said while the wildfires are graphic and heartbreaking, the total property damage needs to be considered in context.
“From a macro standpoint, this is still small compared to the 1.3 million dwelling units that were built across the country in 2024,” he said. “Hence, while there may be a short-term bounce to the price of homebuilding ETFs, there should not be a long-run sustained effect.”
The flipside, Chen added, is also true for insurance companies that will have to finance much of the economic recovery.
The $928 million SPDR S&P Insurance ETF (KIE) and the $740 million iShares U.S. Insurance ETF (IAK) have been essentially flat over the past five trading days.
“Insurance companies will have to pay for claims on tens of thousands of units, but they have reserves to pay for events such as these, so the effect on earnings is limited,” Chen said. “In addition, insurance companies are usually re-insured in the case that the claims exceed the reserves.”