Wednesday’s ETF To Watch: SPDR Homebuilders ETF (XHB)

by on December 22, 2010 | ETFs Mentioned:

Wall Street got off to a quiet start on Monday with investors still feeling uncertain about European debt and Korean tensions. However, the markets enjoyed a nice pop on Tuesday following a round of encouraging economic news from a number of sectors. The sentiment on the Street was lifted thanks to corporate deal making news of Toronto-Dominion Bank’s $6.3 billion acquisition of Chrysler Financial. Copper made headline news as well on Tuesday, with the metal surging to record highs on news of increasing demand from China and growing concern about the unfortunate mine incident in Chile. The shortened trading week is managing to keep investors busy with a round of economic news still to be released, including: GDP figures, jobless claims, and durable good orders [see Three ETFs To Watch This Week].

Later today the National Association of Realtors will release the existing home sales report for November. The report is scheduled for release at 10:00 am (ET), and it includes the number of previously constructed homes, condominium and co-ops in which a sale closed during the month. Since existing home resales account for a significant portion of the housing market, its useful to take note of averages and important changes, because trend analysis of this economic indicators has proven to be useful in forecasting. More importantly, the existing home sales figure is not only useful as a gauge for housing demand, but also as an indicator for economic momentum that is bound to carry over into a number of other sectors as well as several commodities as well.

Figures were strong and positive for sales in August and September, but in October the number retreated and existing home sales fell 2.2% to a 4.43 million annual unit rate. Excluding today’s figure, home sales are down 2.9% year-to-date when compared to the same time last year. Lawrence Yun, NAR chief economist, said that recent sales patterns can be expected to continue, and he further went on to comment that a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales, thus resulting an uneven recovery across the nation [consider reading Three ETFs To Watch As The Housing Market Crumbles]. Analysts are expecting the figure to be somewhere in the range of 4.25 to 4.99 million, with the average estimate coming in at 4.75 million units.

As a result of this important data release, today’s ETF to watch is the Homebuilders SPDR (XHB) issued by State Street, which tracks the S&P Homebuilders Select Industry Index. The S&P Homebuilders Select Industry Index is an equal weighted market cap benchmark that represents the homebuilding sub-industry portion of the S&P Total Markets Index. It tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges [see XHB Holdings]. XHB offers exposure to the Building & Construction sector at little cost, with its expense ratio coming in at just 0.35%, one of the lowest levels in the category [see XHB Fundamentals].

The fund has returned an impressive 15.8% year to date, and it also has a very liquid options market, further expanding trading and investing strategies available for those interested in gaining exposure to the housing industry. Investors will definitely want to keep their eye on XHB as the existing home sales report hits the presses. The monthly figure itself may prove to be a volatile source of information, capable of sending the markets in either direction, while the commentary in the report will bear longer-term significance as investors will pay close attention to any insights regarding any possible market trends heading into 2011.

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Disclosure: Photo courtesy of John Wiley. No positions at time of writing.