Make Money in Fallen Homebuilders the Easy Way
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the housing industry to eventually recover as the housing market works through its extra inventory of homes and our global economy eventually recovers, the SPDR Homebuilders ETF (NYS: XHB) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. This homebuilding ETF's expense ratio -- its annual fee -- is a rather low 0.35%.
This ETF has performed...well...poorly, but that's largely due to the housing market cratering over the past several years. That won't last forever. And as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 38%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. You might not think of mattress specialist Select Comfort (NAS: SCSS) as a homebuilder, but think about it -- every new home needs bedding. The company saw its shares surge 139% in 2011, partly due to the effect of rising prices on profit margins. The company is bullish, noting that most consumers don't even know about it yet. A little more of a head-scratcher for its inclusion is iRobot (NAS: IRBT) , up 23%. Yes, it does make robots to sweep war zones for land mines. But it also makes robots for homeowners, to vacuum their floors and clean their pools and gutters. The company is seeing strong growth in demand domestically and internationally, and recently posted big gains.
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. These include more of the usual suspects you'd expect in a homebuilding ETF, such as PulteGroup (NYS: PHM) , down 19% so far in 2011. There are some signs that the housing market may be thinking about turning around, with backlog orders recently up 2% for Pulte -- and even more at other companies, such as Beazer Homes (NYS: BZH) , with its 24% gain in new orders.
Gypsum and wallboard concern USG (NYS: USG) , meanwhile, shrank by about 39%. Having emerged from bankruptcy protection awhile back, it's struggling in this rotten housing market, but may still end up making its investors good money. Meanwhile, Whirlpool (NYS: WHR) , down 40%, has remained profitable over the past several years, even in this crummy home economy, although it's facing tough competition from Korean rivals.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time this article was published LongtimeFool contributorSelena Maranjianowns shares of iRobot, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of iRobot. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.