Opportunity: The fund uses a passive management strategy that is designed to track the total return performance of the S&P Homebuilders Select Industry index. Generally speaking, this fund has a narrow focus of home building companies and its lack of diversity is not very encouraging for an investor looking for a broadbased index. However, knowing that housing market has been in slump for almost a year now, it presents an opportunity to expose yourself to a good growth when Housing finally recovers.
Dilemma: How do you know when the ETF has bottomed? Nobody knows. Housing has delivered enough bad news for almost a year now, enough to discourage most people. The sales have been dwindling and so did the median price. And the Sub-prime loan debacle has added to the complexity. The lending practices have been tightened by the banks now, which has discouraged buyers with 0% or even 5% down payment. This has caused the inventory to pile up in most cities in the country. Right now, we are not seeing bright light at the end of the tunnel yet. Question is, how far yet go without seeing light at the end of the tunnel.
But there is another segment of optimists already lining up in the hope that we have already seen the bottom. Not sure, if I can concur this view except for the surprisingly positive news from New Home sales for April that shot up to 14 year high. But one month data means just volatility and not a real substantial move upwards. Moreover, we are not sure if we are done with the ALL the bad news yet.
No matter when it recovers, the overly heated markets of Florida and Southern California will need substantial time to recover its economy to be in commensurate with its housing market.
XHB Trade: Saw some bulls moving in at $34 mark few days back. I think with so much liquidity around, bulls will buy-in at any small dips now. I don't regret not being a participant in that move upwards from $34 to $35.5 since my view of housing is to wait for a much better opportunity. Despite my "wait" approach, I probably will move into XHB for the price range of $28 - $32.
May be another thought to consider is: If I have enough money, should I buy a housing company stock/ETF or a HOUSE?
-Nidhi
