Housing Bonanza Continues

Published on Wednesday, 25 January 2012 19:51 Written by Todd Shriber

New York, January 25^th  (TradersHuddle.com) – As we previously noted in our coverage of the iShares Dow Jones US Home Construction ETF (NYSE: ITB), homebuilders stocks and the ETFs that track them have been on fire for several months, moving higher in almost straight-line fashion off their October lows. The good times continued today even after the National Association of Realtors said pending home sales fell 3.5% last month. Economists had been expecting a decline of just 0.1%.

Even with that headline, the iShares Dow Jones US Home Construction ETF was up 2.4% and closed right near another new 52-week high. Similar kudos should be extended to today’s ETF of the day, the SPDR S&P Homebuilders ETF (NYSE: XHB), which added 2.1% and did in fact close at a new 52-week high.

In comparing these two ETFs, we noted a key difference is that ITB features a heftier allocation to actual homebuilders such as Pulte (NYSE: PHM), Lennar (NYSE: LEN) and DR Horton (NYSE: DHI) while XHB features more prominently stocks that are more retail plays on a resurgent residential real estate market. Stocks such as Dow component Home Depot (NYSE: HD), rival Lowe’s (NYSE: LOW), Tempur Pedic (NYSE: TPX) and Pier One (NYSE: PIR), just to name a few, are featured among XHB’s top-10 holdings.

There is utility in XHB’s composition for investors. ITB is an excellent avenue for gaining larger exposure to new home construction. On the other hand, XHB not only taps into the new home theme, it’s arguably the better ETF play on existing home sales as holdings such as Home Depot and Lowe’s are where folks go when they want to improve a home, new or existing.

Same goes for stocks like, Tempur Pedic, Pier One and Whirlpool (NYSE: WHR), another XHB holding. Those stocks benefit from improvements in both new and existing home sales data. The bottom line is both ITB and XHB are useful for investors looking to tap into a residential real estate recovery, but it’s probably not advisable to own both ETFs simultaneously as there is substantial overlap in terms of holdings. Owning one is fine and if the recent trends continue, one of these ETFs is all you’ll need.

The vitals: XHB is six years old and is home to 33 stocks. The ETF features an expense ratio of 0.35% and $1.15 billion in assets under management. The weighted average market cap of its holdings is almost $7.1 billion and the ETF trades at 19.1 times forward earnings and over two times book value. The fund is optionable and shortable and has gained about 11% year-to-date. XHB’s all-time is $46.14, which it achieved less than two months after its January 2006 debut.