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With the sequester deadline for the US Federal Government looming large over the economy, it was not expected that stocks would be able to rally. However, this has not been the case, as equities have taken the proposed cuts in stride, allowing equities to push higher.

This is despite the fact that the sequester is due to begin in short order and that it could have a modest impact on the economy. Some are predicting job losses and reduced growth, while others aren’t betting on this pessimistic scenario (With Sequester Ahead, Are Defense ETFs in Trouble?).

It appears as if this optimism is winning out for now, as the market has rewarded investors will solid gains in the Wednesday session. Index ETFs rallied more than 1% to provide investors with a handful of gains before the sequester hits the economy.

The SPDR S&P 500 (SPY) rose 1.26%, the SPDR Dow Jones Industrial Average ETF (DIA) climbed 1.31%, the PowerShares QQQ Trust ETF (QQQ) posted a gain of 1.02%, and the iShares Russell 2000 Index ETF (IWM) closed the session rising 1.05%.

Beyond the sequester, it also didn’t hurt that Ben Bernanke’s testimony to Congress was very dovish. It seemed to suggest that low rates would be here to stay and that aggressive bond buying campaigns wouldn’t be going anywhere soon.

Another factor which could have possibly led the market to positive territory is the upbeat Pending Home Sales Data. The National Association of Realtors reported that its Pending Home Sales Index rose 4.5% to 105.9 in January from the downwardly revised 101.3 in December. This further provides evidence of recovery of the once grievous sector.

The housing sector should turn out to be the primary driver of economic growth in 2013. For seven straight quarters spending on home construction and home improvement activity had a positive contribution to overall economic growth (Housing ETFs Rally on Solid Data).

Given that the sequester hasn’t been much of an issue in terms of growth predictions, and some of the solid housing data as of late, investors may want to consider looking at real estate and homebuilder ETFs at this time. These segments have been beaten down, and now could be a great time to consider these ETFs for more gains heading into March:

SPDR S&P Homebuilders ETF (XHB - ETF report)

XHB appears to be very popular, as it has an asset base of $2.36 billion and offers liquidity as revealed by its trading volume of more than 8 million shares a day. The fund charges a fee of 35 basis points a year (Top Ranked Homebuilder ETF in Focus: XHB).

The fund’s asset base is spread across 36 securities. Among sectors, XHB has 28.7% of its asset base in homebuilding and 26.79% in building products, while the rest is spread across home furnishing retail, home improvement retail and household appliances.

The fund does well to minimize company-specific risk thanks to its equal weighting. It invests 36.49% of its asset base in the top ten holdings. Among individual holdings, Mohawk Industries, Tempur Pedic and Standard Pacific form the top line of the fund with respective shares of 3.95%, 3.87%, and 3.78%.

In the previous trading session, the fund climbed 2.16% to close at $28.37.

Vanguard REIT ETF (VNQ - ETF report)

VNQ is the largest real estate ETF in the space with an AUM of $32.3 billion. With holdings of 117 securities, the product puts 44.5% of its assets in the top 10 companies, suggesting a greater concentration across individual firms (Is ROOF a Better Real Estate ETF?).

Looking at real estate market exposure, the fund is well diversified between retail REITs (27.40%), specialized REITs (28.70%), residential REITs (17.1%), office REITs (13.9%), diversified REITs (7.6%) and industrial REITs (5.30%).

Large caps account for about 45% of the assets while mid and small caps make up the remaining portion of the basket. The fund is liquid as it trades in higher volumes of more than 1 million shares per day, signifying that no extra cost of investment is involved or the bid/ask spread is minimal.

The product is one of the low-cost choices in the space, charging only 10 bps in annual fees from investors.

Dow Jones U.S. Real Estate Index Fund (IYR - ETF report)

IYR is another popular ETF in the real estate space. This ETF provides liquidity to investors trading with a volume level of more than seven million shares a day and an asset base of $5.4 billion (The Introductory Guide to Real Estate ETF Investing).

The fund manages a basket of 89 real estate companies with 40.5% of the asset base invested in the top 10 holdings. Among individual companies, Simon Property Group takes the top spot with a share of 8.72%. Beyond SPG, American Tower Corp and HCP Inc occupy the second and third positions with an asset investment of 5.34% and 3.91%, respectively.

Among sector holdings, Specialty REIT, Retail REIT and Industrial REIT take the major chunk of the asset base, collectively having a share of roughly half the portfolio

For this exposure the fund charges an expense ratio of 47 basis points, putting it in a decent position in terms of total costs.

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