ETF Battles: REZ vs. XHB (Homebuilders vs. REITs) – Who Wins?

ETF Battles: REZ vs. XHB (Homebuilders vs. REITs) – Who Wins?

This is an excerpt from ETF Battles on ETFguide TV with REZ vs. XHB – two U.S. real estate focused ETFs.  Who wins the battle?

  • REZ and XHB go against each other in key categories, including cost, performance and a mystery battle category
  • Both ETFs cover the U.S. real estate market, but with a radically different approach
  • This is a battle between the landlords vs. homeowners

In our latest ETF Battles, Ron DeLegge at ETFguide referees a duel between the iShares Residential Real Estate ETF (REZ) and the SPDR S&P Homebuilders ETF (XHB) with Todd Rosenbluth at CFRA Research and John Davi at Astoria Portfolio Advisors judging the battle. Just one ETF can win this battle and each fund is pitted against the other in four battle categories.

Ron: Today’s ETF battle categories are cost, yield, performance, and then we’ve got a mystery category. The mystery category is where our judges get to choose the factor or factors that they feel are important in supporting their analysis. And who knows? That mystery category can end up deciding which ETF wins this battle. My scorecard is ready. As you can see, it’s blank. We’re going to get this battle started. We’re going to go through these four battle categories one at a time. Each one of you are going to pick REZ or XHB as the winner in each respective battle category. You’re going to have 30 seconds to do that. Let’s begin with the first battle category, cost. Todd, you’ve got 30 seconds, go.

Todd: XHB is by far the cheaper ETF in cost. 35 basis points, that’s a lower expense ratio, but we at CFRA think investors, if you’re looking at sector ETFs like these, you want to go beyond the expense ratio. Understand the price and the asset value, and understand the liquidity. You have much more trading volume at XHB. You’ve got more liquidity and that priced in that asset value is more inline. Cost is one of the three pillars that we use at CFRA, and it stands out for XHB in our opinion.

Ron: John, what’s your take on cost? Who wins the battle?

John: I usually disagree with Todd, but in this case I would say that XHB is the winner from a total execution standpoint, marketing standpoint, bid offer, discount to net asset value. It’s more utilized as an investment vehicle alone. There’s like a trading vehicle. I think that’s why you have overall lower cost compared to REZ. Which there is a place for REZ in a portfolio, but I think there’s some other ETFs within a REZ space that are lot more liquid, larger, and that would be a better battle compared to XHB. But in this instance, between these two, I would say XHB.

Ron: Okay, we need to move to the next category, which is yield. John, who wins the battle?

John: I think here REZ as a business, their goal is to produce high cash flows and they give those cashflows back out to their investors. I see a yield of about 3.4 for REZ. Whereas, it’s like 95 basis points for Homebuilders. I think Homebuilders is an area where if you’re constructive on the economy, you think we’re entering some cyclical upswing, you’re going to buy that. Whereas you’re going buy REZ if you just want a cashflow producing asset. If you want to soften your portfolio volatility with a little bit of an above average income. I would say in this category REZ is the clear winner.

Watch the full episode of #ETFBattles between REZ vs. XHB at ETFguide TV. 

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