Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the American homebuilding industry to take off eventually, then the Dow Jones U.S. Home Construction Index Fund ETF (NYSE: ITB ) 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. The construction ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF doesn't sport the most attractive performance record, but that's not surprising, given the state of the U.S. housing market during the relatively short life of the fund. It underperformed the S&P 500, on average, over the past three and five years. 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 22%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several home-construction-related companies had strong performances over the past year. Paint giant Sherwin-Williams (NYSE: SHW ) , for example, gained 19% as it fought rising raw materials costs and offset them by raising its prices. Home builder Pulte Homes (NYSE: PHM ) , up 14%, has been impressive lately, reporting revenue up slightly over year-ago levels and orders up 8%. Profit margins have also been rising because of effective cost-cutting, as the company sold some less lucrative land lots. Pulte is aiming to pay down debt, too.
Like other companies in this arena, Lowe's (NYSE: LOW ) is waiting for the housing market to turn around. But in the meantime, it's still been able to do well serving the needs of remodelers and repairers, and buying back stock to reward shareholders.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Gypsum and wallboard concern USG (NYSE: USG ) , for instance, shed about 26% over the past year -- though it's been on the rise in recent months, partly due to promising news from some homebuilders such as Pulte. Having emerged from bankruptcy protection a while back, it may still end up making its investors good money.
The big picture
Demand for new homes in the U.S. will eventually pick up, once the oversupply that built up in recent years is worked through. 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.