Berkshire Hathaway completed its $6.8 billion acquisition of homebuilder Taylor Morrison on July 24, likely Greg Abel's first major deal since taking over as CEO from Warren Buffett. The purchase gives Berkshire homebuilding operations in 21 states and 52 housing markets and points to a long-term bullish position on the U.S. housing market, which could benefit other homebuilder stocks such as those held in the State Street SPDR S&P Homebuilders ETF (XHB).
Berkshire Hathaway completed its acquisition of homebuilder Taylor Morrison on July 24 at a total equity value of $6.8 billion, likely Abel's first big deal since becoming Berkshire's CEO. Abel is a longtime colleague of the now-retired Warren Buffett.
Berkshire deepens its housing bet
With Taylor Morrison added, Berkshire Hathaway now owns homebuilding operations in 21 states and 52 housing markets. The deal suggests Abel is taking a long-term bullish position on the U.S. housing market, even as investors wonder whether it signals he'll become more aggressive deploying Berkshire's large cash holdings.
Taylor Morrison itself is not part of the State Street SPDR S&P Homebuilders ETF, since it is now fully owned by Berkshire. But the ETF still offers exposure to dozens of other housing and related stocks.
XHB's long-run returns lag the market
The State Street SPDR S&P Homebuilders ETF holds a portfolio of 33 stocks spanning homebuilders, building-products makers, and household-appliance companies. It charges an expense ratio of 0.35%. Its largest holdings include Champion Homes at 3.99% of the fund, PulteGroup at 3.69%, KB Home at 3.65%, Williams-Sonoma at 4.08%, and Home Depot at 3.7%, with Owens Corning as the fund's top holding.
However, the housing market has struggled for the past few years. The fund has delivered average annual returns of only 2.34% over the past year and 7.43% over the past five years. Since its inception in January 2006, it has delivered annualized returns of only 4.93% — underperforming the S&P 500 for 20 years running.
A narrow, long-term bet on housing
The ETF holds only 33 stocks and is heavily reliant on a single sector, which has trailed the broader market for two decades. Still, if the housing market eventually rebounds and demand for new homes and building materials picks up, that activity would likely lead to bigger gains for the fund over time.
Abel's move to buy Taylor Morrison doesn't by itself justify buying shares of the ETF. But for investors who believe housing will outperform in the long run, XHB offers a targeted way to position for that outcome.
Source: The Motley Fool
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