|Instrument:Dow Jones U.S. Home Construction Index Fund|
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The iShares US Home Construction ETF (ITB) is designed to expose investors to the exciting homebuilding sector of the U.S. domestic economy. The ITB is structured to deliver investment results similar to the performance of the Dow Jones U.S. Select Home Construction index. The index is a market-breadth indicator, and in addition to home construction companies, it also features constituents involved in home improvement as well as speciality chemicals. The ITB serves as the benchmark stock ETF for the homebuilding sector in the U.S. This sector is closely monitored by investors for clues on the overall state of the economy as well as the prevailing business cycle.
The iShares US Home Construction ETF was launched on the 1st of May 2006 and trades on the New York Stock Exchange Arca, under the ticker symbol ITB. The ITB started out with a price of $50 and immediately dipped. The tumble was overextended by the 2008 global financial crisis, with the homebuilding sector one of the worst-hit during the period. This saw the ITB print its all-time low at circa $6 in March 2009. The ETF then traded sideways until mid-2011 when a multiyear rally was kick-started and sustained until January 2018 when a high of circa $46 was printed.
A retracement then followed that sent the ITB to lows of just below $30 by the end of 2018. The uptrend resumed in January 2019, and by January 2020, the ITB revisited the psychologically important price level of $50 before the coronavirus-inspired tumble sent the stock to lows of circa $25 by April 2020. The ETF quickly recovered and managed to break through the $50 barrier to print all-time highs at circa $57 as of August 2020.
ITB Trading Information
- MT5 Symbol: #ITB
- Trading Hours: Monday – Friday (GMT) 13:30 – 19:59
- Country: US
- Currency: USD
- Exchange: NYSE Arca
- Typical Spread: 0.0013
- Units: Share
- Minimum Trade Size: 10
- Increment: 0.01
- Leverage: 20:1
- Description: Dow Jones US Home Construction Index Fund
The ITB, as of August 2020, is composed of about 44 stocks. Stocks included in the ETF must meet the following conditions:
- They must be listed on the NYSE or Nasdaq
- They must operate in the homebuilding sector, in any one of the following industries: home construction; building materials and fixtures; furnishings; home improvement retailers; and even speciality chemicals for homebuilding and improvement.
ITB is rebalanced quarterly in March, June, September and December for reweighting purposes. The calculation frequency is real-time, and the calculating currency is the U.S/ dollar.
The top 10 stocks in the ITB as of August 2020 are:
- D R Horton Inc.
- Lennar A Corp.
- NVR Inc.
- PulteGroup Inc.
- Lowes Companies Inc.
- Sherwin Williams
- Home Depot Inc.
- Masco Corp.
- TopBuild Corp.
- Toll Brother Inc.
Homebuilding stocks carry the largest industry weight in the fund at almost 64%, followed by Building Products at around 15% and Home Improvement Retail at about 10%.
Factors Influencing the Overall Price of the ITB
Homebuilding is a vital sector of the U.S. domestic economy, and it is typically sensitive to underlying economic conditions. A strong economy boosts demand in the sector and inspires higher ITB prices, whereas a weak economy triggers lower ITB prices. This is a major reason why the sector was one of the most hit during the 2008 global financial crisis. The sector is also a target of special taxation and legislation due to the emotional topic of homeownership in the United States. Favourable taxes and legislation will always provide tailwinds for the ITB ETF, whereas lower prices will be seen if any piece of legislation or taxation is unfavourable to the sector.
As an ETF that is top-heavy, the price of ITB can also be influenced by significant price changes of major constituents, such as D R Horton Inc. or PulteGroup Inc. Significant changes in an industry, such as homebuilding that carries major weight in the ETF, can also impact the price of ITB heavily. Additionally, investors tracking the ITB should always track the release of major economic indicators relevant to the sector, such as New Housing Starts and Building Permits.
Why Trade the ITB ETF
ITB constituents are large-cap stocks that are the most traded in the homebuilding sector. This consequently makes the ITB one of the most liquid ETFs for investors to trade.
- Smooth Price Action
ITB is a top-heavy ETF, which makes its price action relatively smooth and predictable outside extreme crisis situations.
- Vast News Coverage
As the benchmark homebuilding stock ETF, ITB is one of the most followed and analysed financial assets in the US. This makes it easy for investors to gauge overall market sentiment.
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Dow Jones U.S. Home Construction Index FAQ
- Why should I trade the Dow Jones U.S. Home Construction Index Fund?
The U.S. housing sector includes a number of large homebuilders and home improvement firms, including such construction powerhouses as DR Horton and Lennar, as well as home improvement companies Home Depot and Lowe’s. Together these companies account for tens of billions of dollars of economic activity in the U.S. annually. The homebuilding sector is an important indicator of the broader U.S. economy, and investors closely watch this sector for any signs of increased strength or weakness. An ETF like the Dow Jones U.S. Home Construction Index Fund allows traders the chance to participate in the sector without investing in individual stocks.
- Is the Dow Jones U.S. Home Construction Index Fund the best homebuilder fund?
If you are looking for diversification in the homebuilding industry with a concentration in the individual homebuilder names rather than the home improvement names then this is a good ETF to consider. That’s especially true during a strong housing cycle, which has been the case in the U.S. as of 2020. Fortunately, when you use CFDs to trade this fund you can easily go short as well as long, so if the housing market suddenly turns weaker you know you can profit from it by trading at AvaTrade.
- What’s the best strategy for trading the Dow Jones U.S. Home Construction Index Fund?
There are several important economic data releases you’ll want to mark on your calendar and become very familiar with if you’re planning on trading the Dow Jones U.S. Home Construction Index Fund. The most important of these is the new home sales data that’s released near the end of each month. It tells the number of new homes that were sold or put under contract. Also, of importance is the pending home sales data which is compiled and released by the National Association of Realtors. This collects data on accepted sales contracts and it is a good forecast for the new home sales data since pending sales become actual sales in about two months’ time. Finally, there is the existing home sales data, also produced by the National Association of Realtors and measuring the number of used homes being sold.