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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.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

XHB is managed by State Street Global Advisors, and this fund has amassed over $843.90 million, which makes it one of the average sized ETFs in the Industrials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P Homebuilders Select Industry Index.

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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics 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.

It's 12-month trailing dividend yield comes in at 0.97%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

XHB's heaviest allocation is in the Consumer Discretionary sector, which is about 57.90% of the portfolio. Its Industrials and Energy round out the top three.

When you look at individual holdings, D.r. Horton Inc. (DHI - Free Report) accounts for about 4.78% of the fund's total assets, followed by Johnson Controls International Plc (JCI - Free Report) and Lennar Corporation Class A (LEN - Free Report) .

Its top 10 holdings account for approximately 43.88% of XHB's total assets under management.

Performance and Risk

Year-to-date, the SPDR S&P Homebuilders ETF has added about 9.30% so far, and is down about -4.74% over the last 12 months (as of 03/17/2023). XHB has traded between $52.03 and $72.27 in this past 52-week period.

The fund has a beta of 1.32 and standard deviation of 34.10% 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.


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 $165.39 million in assets, iShares U.S. Home Construction ETF has $1.54 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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