Homebuilders Battle For Inflows: ITB vs. XHB

by on May 1, 2013 | ETFs Mentioned:

The U.S. housing sector has spent the last five years trying to recover from the bruises left by the real estate crash. In 2012, things finally started to turn around for this sector, bringing in positive returns and cash for the two largest Homebuilder ETFs: iShares Dow Jones US Home Construction Index Fund (ITB, A) and SPDR S&P Homebuilders ETF XBH [see also How To Pick The Right ETF Every Time].

ConstructionMeet the Competitors

These construction ETFs are the two largest options available to investors, holding roughly $2.5 billion in total assets under management each. XHB tracks the S&P Homebuilders Select Industry Index, a benchmark that tracks all the U.S.-listed common stocks through an equal weighted market cap methodology. ITB, on the other hand, follows the Dow Jones U.S. Select Home Construction Index, which tracks the performance companies that are based in the U.S. and focus on the homebuilding segment of the market. Both ETFs focus primarily on medium cap stocks and both have a mean market cap of under $3 billion. This smaller market cap could have played a key role on getting the funds back on track after the market crash in 2008 [also see How Volatile Is Your Long/Short ETF].

Homebuilders were among the hardest hit sectors during the recent recession, as steep declines in demand for new properties brought this once booming industry to a standstill. However, the combination of legislative initiatives and record low interest rates brought this down-and-out industry back to life [try our Free ETF Head-To-Head Comparison Tool].

The Bottom Line

ITB has had a stonger rebound since 2012, but it also lost more in earlier years, while XHB had a strong starting position heading into the recovery. At this point it looks like both funds will have a record high year, with more investors pouring funds into ITB. Although both funds provide exposure to the volatile housing sector, with roughly the same number of securities, there are some key differences in cost and liquidity that investors should be aware of before choosing a fund.

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Disclosure: No positions at time of writing.