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

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Making its debut on 01/31/2006, smart beta exchange traded fund SPDR S&P Homebuilders ETF (XHB - Free Report) provides investors broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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

The fund is managed by State Street Global Advisors, and has been able to amass over $1.48 billion, which makes it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, this particular fund 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 0.86%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, 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 53.80% 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 4.66% of the fund's total assets, followed by Carlisle Cos Inc (CSL - Free Report) and Trane Technologies Plc (TT - Free Report) .

Its top 10 holdings account for approximately 39.94% of XHB's total assets under management.

Performance and Risk

So far this year, XHB has added roughly 44.61%, and is up about 44.86% in the last one year (as of 12/07/2023). During this past 52-week period, the fund has traded between $59.46 and $86.68.

XHB has a beta of 1.38 and standard deviation of 27.50% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Homebuilders ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Invesco 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 Building & Construction ETF has $227.14 million in assets, iShares U.S. Home Construction ETF has $2.14 billion. PKB has an expense ratio of 0.62% and ITB charges 0.40%.

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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