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Is SPDR S&P Homebuilders ETF (XHB) a Strong ETF Right Now?

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A smart beta exchange traded fund, the SPDR S&P Homebuilders ETF (XHB - Free Report) debuted on 01/31/2006, and offers broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $784.13 million, this makes it one of the average sized ETFs in the Industrials ETFs. XHB is managed by State Street Global Advisors. XHB 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

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Operating expenses on an annual basis are 0.35% for XHB, making it one of the least expensive products in the space.

XHB's 12-month trailing dividend yield is 1.02%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

XHB's heaviest allocation is in the Consumer Discretionary sector, which is about 52.60% of the portfolio. Its Industrials and Energy round out the top three.

When you look at individual holdings, Williams-Sonoma Inc. (WSM - Free Report) accounts for about 4.68% of the fund's total assets, followed by Floor & Decor Holdings Inc. Class A (FND - Free Report) and Lennox International Inc. (LII - Free Report) .

The top 10 holdings account for about 40.36% of total assets under management.

Performance and Risk

Year-to-date, the SPDR S&P Homebuilders ETF has lost about -32.63% so far, and is down about -30.44% over the last 12 months (as of 11/10/2022). XHB has traded between $52.03 and $86.27 in this past 52-week period.

The fund has a beta of 1.32 and standard deviation of 36.35% for the trailing three-year period, which makes XHB a high risk choice in this particular space. With about 37 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Homebuilders ETF is not a suitable option for investors seeking to outperform the Industrials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

Invesco Dynamic Building & Construction ETF (PKB - Free Report) tracks Dynamic Building & Construction Intellidex Index and the iShares U.S. Home Construction ETF (ITB - Free Report) tracks Dow Jones U.S. Select Home Construction Index. Invesco Dynamic Building & Construction ETF has $105.02 million in assets, iShares U.S. Home Construction ETF has $1.14 billion. PKB has an expense ratio of 0.57% and ITB charges 0.39%.

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.

Bottom Line

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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