Homebuilders are the next stop on our “house tour” of real estate ETFs. XHB and ITB are two options for investors seeking focused exposure to the US residential construction sector.
While these two ETFs are driven by similar economic factors and are essentially “substitutes” over a longer time horizon, the portfolio composition of these ETFs is quite different.
ITB offers investors more pure-play exposure to homebuilders, while XHB offers relatively more diversified exposure to the broader residential construction industry including homebuilding suppliers and materials producers.
By most metrics, housing markets remain significantly undersupplied after a dearth of new construction over the last 30 years. Operationally-efficient builders have grown significant market share since the recession.
Focused and levered to the highly-cyclical residential construction sector, these ETFs represent a relatively small slice of the US housing industry and are generally not for the faint of heart.