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Investment Profile

House Beautiful: Home Sweet Home ETF Supports Home Building

  • Home Sweet Home offers investors exposure to the homebuilding sector
  • The fund’s biggest holdings include companies like Home Depot, Lowe’s, and Whirlpool
  • Home Sweet Home’s performance is correlated with the housing market
3 min read

A woman’s home is her castle.

And it can do far more than shield her from the elements. It can also add value to her investment portfolio.

Investing in the homebuilding industry may not be something that immediately occurs to most people, but if you take a look around your neighborhood–or any neighborhood, for that matter–it’s obvious that the sector is, and continues to hammer away productively.

While there are some scary aspects to the industry (like the housing crisis in 2007 and 2008 that led to the Great Recession), it has bounced back. And with home prices hitting record highs in a number of U.S. cities, you may want to consider giving your money a metaphorical hard hat and put it to work.

You can swing your financial hammer with Home Sweet Home, Stash’s name for the SPDR S&P Homebuilders ETF (ticker: XHB).

What’s in the fund?

Home Sweet Home is an exchange-traded fund (ETF) that provides investors exposure to 35 companies in the homebuilding industry. And while the core concept of the fund is homebuilding, many of the companies contained within actually operate on the fringes of the industry.

For example, 31% of the companies in the fund are homebuilders, while more than 15% of the fund is composed of stocks from construction supply companies. A further 9.8% is made up of home furnishers, and 9.2% of home improvement firms.

The fund’s biggest holding is Home Depot (4.9%), followed by PulteGroup (4.75%), Whirlpool (4.73%), and Lowe’s (4.72%).

It tracks the S&P Homebuilders Select Industry Index.

Performance

The fund launched in 2006 and is managed by State Street Global Advisors.

There are a number of factors that affect the fund’s performance, including (but not limited to) home prices and housing demand. The fund’s worst years occurred during the housing crisis a decade ago. In 2008, the fund’s return was -36.97%, according to Morningstar.

Since then, however, Home Sweet Home has posted years with enormous returns, and some with small losses. The fund’s best year, for example, was 2012 when it returned 57.33%. Since 2008, its worst year was 2011 when it returned -0.75%.

Year-to-date (as of May 2018), the fund is down -11.8%

Similar funds

There’s plenty of room for more than one home builders’ fund under the market’s roof.

While Home Sweet Home is a popular choice with investors, another, the iShares Dow Jones US Home Construction (ticker: ITB), also provides exposure to the industry. ITB is managed by Blackrock, and like Home Sweet Home, also launched in 2006.

The fund tracks the Dow Jones U.S. Select Home Construction Index, and its portfolio consists of stocks from 47 associated companies. ITB’s holdings are more concentrated than Home Sweet Home’s, with nearly 65% of them in the homebuilding sector. 14.68% are from the building products sector, and 9.6% are from home improvement companies.

ITB’s performance has closely followed Home Sweet Home’s, as exhibited by its current (as of May 2018) year-to-date return of -11.99%, according to Morningstar. It was also hammered in 2008, when it returned -42.46%, and rebounded in a big way in 2012, returning 79.36%.

Risks and considerations

Like any fund, Home Sweet Home has a number of risks. Perhaps the most obvious of which is that its subject to the whims of the housing market.

While recent years have shown that the housing market can make for robust investments, the housing crisis of 2008 should serve as a reminder that the market can see significant downturns.

Home Sweet Home is also subject to a variety of other risks. For example, the fund’s prospectus highlights non-diversification risk, because the fund’s holdings are concentrated in and around one industry, an economic downturn could have an outsized effect on its performance.

Risks related to the home construction industry, where changes in government spending, zoning laws, and interest rates can affect the fund’s performance, according to the fund’s prospectus.

Costs

Home Sweet Home has an expense ratio of 0.35%, which is slightly above average according to industry data.

By Sam Becker

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