That more diversified approach has not only enabled this fund to post slightly positive 2.7 percent yearly returns over the past decade, better than the more popular ITB fund, but it has also been able to do so with less volatility, according to Morningstar.
Yet it may be that the third-largest ETF in this group is best-suited for this category. Though the PowerShares Dynamic Building & Construction Portfolio (PKB) has just $70 million in assets—ITB has assets of $1.5 billion; XHB has $1.3 billion—it takes a very flexible approach to the sector. S&P’s Rosenbluth says the fund’s quarterly rebalancing has enabled it to zoom in on the homebuilders and suppliers that are showing clear operating profit momentum and share price momentum.
Indeed, this fund’s 7 percent annual return over the past decade is the clear winner vis-à-vis the other two ETFs, and its year-to-date, one-year, three-year and five-year returns are all superior, too. Right now, this fund has more than 35 percent of its assets invested in building materials suppliers that make residential construction materials such as sinks, toilets, flooring and insulation.
Some people improve their homes before they put up for the for-sale sign, while others like to pay for renovation projects after they have made a purchase. Spending on home improvement will likely top $300 billion this year, according to the Harvard Joint Center for Housing Studies. That will surpass the previous peak set back in 2007 That has aided PKB’s performance as holdings such as Martin Marietta Materials, Mastec Inc. and SPX Corp. are up an average 72 percent in 2016.
As other home-related firms, such as the homebuilders themselves, start to increasingly profit from the resurgent housing market, they are bound to garner a heavier weighting in this fund.
Rosenbluth expresses concern about the PKB fund’s relatively high 0.63 percent expense ratio, but that cost has been more than offset by its superior short- and long-term performance.
The housing market may get a further boost if Hillary Clinton wins the upcoming presidential election, according to Merrill Lynch’s John Novallo. He thinks her proposal to provide $25 billion in funds to support home ownership and affordable housing would act as a catalyst for many lower- and middle-income buyers that have mostly remained on the sidelines since 2008.
With or without government support, the housing market is clearly on the mend. Look for that rebound to continue. After all, millennials represent a larger cohort than the baby boomers, and many of them are now entering their prime earnings years. As long as mortgage rates stay in check, this is an upturn that may last for a considerable period rather than the meteoric—and ultimately disastrous—housing market surge of a decade ago.