Designed to provide broad exposure to the Industrials ETFs category of the market, the SPDR S&P Homebuilders ETF (XHB) is a smart beta exchange traded fund launched on 01/31/2006.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by State Street Global Advisors. XHB has been able to amass assets over $1.75 billion, making it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the S&P Homebuilders Select Industry Index.
The S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is a modified equal weight index.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.
It's 12-month trailing dividend yield comes in at 0.60%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Consumer Discretionary sector - about 62.10% of the portfolio. Industrials and Energy round out the top three.
When you look at individual holdings, Williams Sonoma Inc (WSM) accounts for about 4.03% of the fund's total assets, followed by Johnson Controls Internation (JCI) and Home Depot Inc (HD).
The top 10 holdings account for about 35.45% of total assets under management.
Performance and Risk
Year-to-date, the SPDR S&P Homebuilders ETF has lost about -0.37% so far, and is up roughly 6.28% over the last 12 months (as of 02/20/2025). XHB has traded between $97.96 and $125.54 in this past 52-week period.
XHB has a beta of 1.48 and standard deviation of 27.75% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 38 holdings, it has more concentrated exposure than peers.
Alternatives
SPDR S&P Homebuilders ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Invesco Building & Construction ETF (PKB) tracks Dynamic Building & Construction Intellidex Index. The fund has $397.02 million in assets. PKB has an expense ratio of 0.57%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
Johnson Controls International plc (JCI) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Williams-Sonoma, Inc. (WSM) : Free Stock Analysis Report
Invesco Building & Construction ETF (PKB): ETF Research Reports
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
