Homebuilder ETFs In Focus As Washington Considers Mortgage Tax Reduction Reform (ITB, XHB)

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November 3, 2017 1:14pm BATS:ITB NYSE:XHB

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Homebuilders and Building and Construction stocks were some of the hardest hit yesterday after news hit the tape regarding the tax bill that was proposed on Capitol Hill which entails capping the mortgage-interest deduction for homeowners.

A Bloomberg.com article titled “Homebuilders Slide After GOP Tax Plan Caps Mortgage-Interest Break” from yesterday states:

“The U.S. real estate industry reeled as the House Republican tax bill proposed capping the mortgage-interest deduction, a long-cherished incentive many Americans have had to buy a house. The measure would limit the mortgage-interest deduction on newly purchased homes at $500,000 — a departure from the current cap of $1 million for couples filing jointly, according to a memo written by the House Ways and Means Committee. The National Association of Realtors, which has been wary of the tax plan, said the memo “appears to confirm many of our biggest concerns.”

ITB (iShares U.S. Home Construction, Expense Ratio 0.44%, $2.2 billion in AUM) is the largest ETF in the segment, with top holdings that appear as follows: 1) DHI (12.74%), 2) LEN (9.79%), 3) NVR (9.63%), 4) PHM (7.30%), and 5) TOL (6.20%). Notably, all five of these names are Homebuilders proper.

The second largest fund in the space is the $1.1 billion XHB (SPDR S&P Homebuilders, Expense Ratio 0.35%), which also was hammered yesterday along with ITB after briefly trading at new 52-week highs earlier in the session. Trading volume in ITB exceeded 7 million shares versus its average daily volume of 2.5 million shares, while XHB turnover soared above 6 million shares versus an ADV of 1.6 million shares.

XHB has a rather different look from a portfolio standpoint particularly because the underlying index follows a modified equal-weighted methodology as opposed to ITB’s market capitalization weighted scheme and top holdings are as follows: 1) DHI (5.21%), 2) PHM (4.98%), 3) LEN (4.76%), 4) WSM (4.57%), and 5) NVR (4.57%).

We do not see a “Bear” fund in this space presently but the levered “Bull” fund NAIL (Direxion Daily Homebuilders & Supplies Bull 3X, Expense Ratio 1.19%, $40.1 million) was especially hard hit yesterday, as well as one might imagine, on heavier than average volume.


The iShares Dow Jones US Home Construction ETF (ITB) was trading at $39.25 per share on Friday afternoon, up $0.24 (+0.62%). Year-to-date, ITB has gained 43.11%, versus a 16.58% rise in the benchmark S&P 500 index during the same period.

ITB currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #6 of 30 ETFs in the Industrials Equities ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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