There is an exchange traded fund for every conceivable asset class and market exposure. ETF providers have been creating new products to match investor demand for more specialised products to create the right exposure for the portfolio (see our guide on how to create a conservative portfolio). Construction ETF or funds with direct exposure to the housing building sector is no different.
Since the housing recovery after the real estate crash, investors have been allocating funds back to real estate. There are two primary ways for investors using housing ETFs to gain direct exposure to the residential real estate sector. Homebuilder ETFs are designed for investors that want to focus on the construction and building sector of the residential real estate.
On the other hand, residential real estate investment trusts is can be considered for Investors that are looking for income or a more steady cash flow with dividends.
While technically REITs are not ETFs, they provide the same results for those that are looking for a vehicle with a diversified exposure to a specific asset class with a strong income. As ETFs can be considered as an open ended fund, REITs can be seen as listed close end fund.
Major differences between housing ETFs (XHB vs ITB)
There are two primary homebuilder ETFs, SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home construction (ITB). On the surface both look very similar with similar number of 30 holdings in the ETF. However the break down the housing ETFs sector exposure shows each index fund focuses on a particular aspect of the home building sector.
XHB shows the S&P homebuilder ETF invests in stocks that revolves around the home building construction. Home building construction stocks makes up the largest sector exposure of XHB accounting for 26% of the ETF. A large portion of the remaining fund invests in stocks that provides home renovation, improvement and services.
ITB extends traditional homebuilding stocks by including exposure to commodity inputs to homebuilder such as Forest & Wood and Chemical companies.
The Construction ETF (ITB) is a traditional market cap weighted index fund. XHB on other hand is an equal weighted ETF. This means the weight of every position in XHB is the same (check out differences between traditional index funds and smart beta etf from our smart beta etf list)
Residential REIT Matches Homebuilder ETF Exposure
One of the few housing ETF is the iShares Residential Real Estate Capped (REZ). REZ tracks the US residential, self storage and health care REIT. Half of ETF invests in listed residential REITs. REZ provides investors with a diversified residential REIT exposure if direct investment in single residential REIT name is not an option.
For investors looking for direct exposure to the residential real estate. Residential REIT invests in housing stock and generate income through collecting rent as well as capital gains from turnover of the underlying investments. List below highlight the major REITs for investors that are looking to invest in residential REITs directly.
Residential REIT List
|Name||Ticker||Market Cap (Billions)|
|EQUITY RESIDENTIAL REIT||EQR||$22.82|
|ESSEX PROPERTY TRUST REIT INC||ESS||$11.59|
|AVALONBAY COMMUNITIES REIT INC||AVB||$18.72|
|CAMDEN PROPERTY TRUST REIT||CPT||$6.17|
|MID-AMERICA APARTMENT COMMUNITIES||MAA||$5.51|
|APARTMENT INVESTMENT & MANAGEMENT||AIV||$4.66|
|AMERICAN CAMPUS COMMUNITIES INC.||ACC||$4.16|
|HOME PROPERTIES INC.||HME||$3.59|
|EQUITY LIFESTYLE PROPERTIES INC.||ELS||$3.68|
|POST PROPERTIES INC.||PPS||$2.84|
|SUN COMMUNITIES INC.||SUI||$2.01|
|EDUCATION REALTY TRUST REIT INC||EDR||$1.22|
|ASSOCIATED ESTATES REALTY CORP.||AEC||$1.08|
|CAMPUS CREST COMMUNITIES INC.||CCG||$0.58|