Penn Wealth Publishing

2022.01.16 Penn Wealth Report Vol 10 Issue 01

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16 penn wealth Report volume 10 issue 01 16 Jan 2022 Penn Wealth Report Copyright 2022. All Rights Reserved. investment intelligence Sub-industry allocation of XHB; Table courtesy of State Street Global Advisors ETF Spotlight SPDR® S&P Homebuilders ETF e contents of this report reflect the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment professional before investing any money. XHB @ $82 The SPDR® S&P Hombuilders ETF XHB $82 , which has been around since 2006, provides investors with an inexpensive way to hold ownership in 35 compa- nies poised to benefit from continued growth in the homebuilding industry. is group includes leading companies in the following segments: homebuilders, building products, home furnishings, home improve- ment retail, and household appliances. Taking a look at the heat map of sub-industry allocation, it is clear that the largest sector/indus- try representation in XHB is Industrials: Building Products. We love this aspect of the fund, in that these companies serve a wider customer base than just the builders. At least in theory, this should pro- vide some cushion from a housing downturn. Looking at the top holdings within this modified equal-weighted fund, we see many industrial names we like going into 2022. For example, Builders FirstSource BLDR $82 , which we highlighted in a pre- vious story, is the top holding. e second largest position is Mohawk Industries MHK $182 , an iconic, Georgia-based maker of carpets and other floor- ing products. Rounding out the top three, we have Whirlpool Corp WHR $233 . Whirlpool, which hap- pens to make its products in the US (unlike GE Appliances, for example, which was sold to China's Haier back in 2016), is our favorite appliances maker. Since XHB is an equal-weighted fund, all of the holdings have somewhere around a 3.5% weight- ing. is is opposed to a market-cap weighted fund, which skews representation in favor of the largest players. Not only does this reduce company risk, it also allows some small- and mid-cap darlings—com- panies which may be able to grow quicker due to their smaller size—to make a real impact. In fact, a plurality of companies in XHB are mid- cap blends (43%), while another 16% and 12%, respectively, are mid-cap growth and mid-cap value holdings. From a sector exposure standpoint, roughly 55% of the companies are in the Consumer Cyclical sector, while 45% are in the Industrials sector. Competitors and performance XHB is not the only homebuilder-focused ETF. e relative newcomer (2019), the Hoya Capital Housing ETF HOMZ $43 , has $81 million in assets under man- agement (AUM) compared to XHB's $2.4 billion in AUM. We have a few concerns with this fund, other than its small size (liquidity is always an important consideration when reviewing ETFs). HOMZ holds 100 equities, which is a bit too many for our liking. Furthermore, the top two holdings are Lowe's LOW251 and Home Depot HD $393 , which are a bit overvalued right now. (Home Depot is a longtime holding in the Penn Global Leaders Club.) e fund's other major com- petitor is the iShares US Home Construction ETF ITB $75 , which has $3.4B in AUM and holds 46 companies. While ITB would be another suitable choice, the fund is more heavily weighted directly on the homebuilders themselves. XHB has an average return of 20% over five years and 17% over ten years. Based on its hold- ings, we see plenty of growth going forward, despite the inev- itable rate hikes on the horizon. XHB is suitable for the Penn Dynamic Growth Strategy as a satellite holding. An easy way to participate in all facets of the homebuilding arena without betting too heavily on any one particular player

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