Greg Abel is a longtime colleague of the now-retired Warren Buffett, and the new CEO of Berkshire Hathaway (BRKA -0.84%) (BRKB -0.57%). likely made his first big acquisition as Berkshire's boss with Buffett in mind. On July 24, Berkshire Hathaway completed its acquisition of homebuilder Taylor Morrison at a total equity value of $6.8 billion.
Many Berkshire investors will wonder whether this deal means that Abel will become more aggressive in deploying Berkshire's hundreds of billions of dollars in cash. No matter what Abel does next with the rest of his company's cash holdings, this acquisition of Taylor Morrison could be a good sign for other homebuilder stocks.
With the addition of Taylor Morrison, Berkshire Hathaway now owns homebuilding operations in 21 states and 52 housing markets. The acquisition shows that Abel is taking a long-term bullish position on the U.S. housing market.
Image source: Getty Images.
How can you invest like Greg Abel? You might want to buy the State Street SPDR S&P Homebuilders ETF (XHB -0.47%). This fund does not own Taylor Morrison, because that company is now fully owned by Berkshire Hathaway. But the State Street SPDR S&P Homebuilders ETF offers exposure to dozens of other housing stocks, in the homebuilding industry and related fields.
If you believe that the U.S. housing market is due for a rebound, this homebuilder ETF could help you capitalize on long-term growth. Let's look at it more closely and see whether it might be a good choice for your portfolio.
33 stocks, 20 years of annualized returns below 5%
The State Street SPDR S&P Homebuilders ETF holds a portfolio of 33 stocks that offer exposure to the homebuilding industry, including companies that sell building products, home furnishings, and household appliances. The fund charges an expense ratio of 0.35%, which is significantly higher than that of the best low-cost index funds.
Some of the ETF's largest holdings include home construction companies like Champion Homes, recently 3.99% of the fund; KB Home, 3.65%; and PulteGroup, 3.69%. Top holdings also include major household retail brands like Home Depot, at 3.7% of the fund, and Williams-Sonoma, at 4.08%. The fund's No. 1 holding is Owens Corning, which makes building materials like roofing, insulation, and doors.
Here's the problem with buying this homebuilders ETF: The housing market has been struggling for the past few years. The fund has delivered average annual returns of only 2.34% in the past year, and 7.43% in the past five years.
NYSEMKT: XHB
Key Data Points
And over the long run, it's done even worse. Since its inception in January 2006, the State Street SPDR S&P Homebuilders ETF has delivered annualized returns of only 4.93%. That's 20 years (and counting) of serious underperformance compared to the S&P 500 index.
Why (or why not) to buy XHB
I don't own shares of this housing ETF, and I would be reluctant to buy any. It only holds 33 stocks and is heavily reliant on the housing sector. And it has underperformed the S&P 500 for many years.
But if you believe that in the long run, the housing market will make a comeback that outperforms the rest of the economy, this fund could be a way to capitalize on that future growth. If more people start buying houses and building new homes, it would mean greater demand for building materials and home furnishings. All that housing-related economic activity would likely lead to bigger gains for the State Street SPDR S&P Homebuilders ETF.
Don't buy shares of this fund just because Greg Abel bought a different homebuilding company. But if you want to buy into companies that could benefit from a brighter future in the housing market, this ETF is a targeted way to do that.
