Construction ETFs

Average returns in this Category	3 months return	6 months return	12 months return	YTD return

Construction	27.34%	59.43%	-25.96%	22.20%

Ticker SPY	Name	3 months return	6 months return	12 months return	YTD return

FLM	First Trust ISE Global Engineering and Construction Index Fund	15.94%	54.24%		28.21%

ITB	iShares Dow Jones U.S. Home Construction Index Fund	37.21%	69.9%	-28.13%	32.31%

PKB	Powershares Dynamic Building & Construction Portfolio ETF	12.72%	45.63%	-22.95%	4.41%

XHB	SPDR S&P Homebuilders ETF	32.09%	62.76%	-26.81%	29.88%


	About Construction ETFs
Construction ETFs Overview and forecast The construction industry hit the wall when the US housing bubble burst and the sector finance began to collapse in 2008. The industry got a true double whammy from the credit crunch, which starved it of desperately needed capital. The meltdown was truly dramatic in construction. Large portfolios of unoccupied housing, and a glut on the market of buildings effectively shut down construction across the US, with few exceptions. Construction industry ETFs were decimated during this period. The average loss was around 40-50%. For some of the newer construction ETFs, they entered the market at the wrong time, and their performance was brutally affected by the sector collapse. In the first quarter of 2009, some recovery, modest, but well off the bottom scraping of the previous year, has been seen. In trading terms, recent revivals have been well worth the investment for those who bought in at the lows. The construction industry, however, is by nature a volatile, reactive, capital sensitive beast at the best of times. When it's hot, it's hot, and when it's not, it's rocklike in its performance, totally static or negative. High returns are possible during booms, and specialist builders, outside the housing industry, are the likely first beneficiaries of any capital influx. Housing, however, is going to have to wait for the market to return to a buying cycle. That's not good for ETFs with big housing components. Either the companies change their business model into a survival mode, or not much is likely to happen. Short term (3 months) This stage of the cycle, early 2009, is far too soon to expect the industry to start to pick up to anything like normal turnovers. It's more likely that the corporations will be looking at defensive models, and the highly competitive US market will make what contracts are available hard fought victories in a buyers' market. Medium (2 years) Over the medium term, the prospects for the industry are a lot better. A recovery, and some of the new initiatives being proposed for green revival of the Rust Belt, are potential saviors for the low capital companies, who can be starved in big project markets. The net effect of a recovery and this mid level activity would be to reinforce just about all ETF portfolios. Seeing some profits, however, will be required, before the market starts building ETF values in the sector. The market is looking for its own criteria, and investment in construction will be wanted to be bulletproof. Long term (5 years) The prospects over a five year term normally would be an up and down cycle. In this environment, the more likely projection is a slow recovery, based on the business survival strategies developed during the collapse. The sector should start showing real signs of revival mid term. But spectacular growth or any real market performance are unlikely, unless the market develops a lot more confidence than it's currently shown in the sector. The market got left holding too many babies in the meltdown, and traders and institutions are not going to be looking for 'maybe' investments. There's not going to be any charity in market analysis. The construction sector is generally considered a tough call by analysts, and good bets will be those which are showing strong contracts and profits. Qualifiers to projections The construction industry in theory is capable of achieving good performance in redevelopment, and projects where massive capital investment isn't required. This is bread and butter work, but it's also a workable survival strategy. Long term, it's fair to describe the current levels of ETFs as oversold. However, with that comment comes the fact that 'oversold' was exactly what the meltdown did. The construction sector will be under a lot of microscopes before its reputation as an investment is restored.

Last Updated on: 2010-01-14 02:03:40

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