Homebuilders and other housing industry stocks have been strong performers in 2012 as low interest rates offset higher underwriting standards for home loans. The SPDR S&P Homebuilders (NYSEARCA:XHB) rose more than 54% since the beginning of this year, while the iShares Dow Jones US Home Const. (NYSEARCA:ITB) is up more than 74% over the same period [for more housing news and analysis subscribe to our free newsletter].
While equities may offer exposure to homebuilding companies, commodities represent another great way to play the boom in the homebuilding industry. Timber, copper, cement and other commodities are widely used in the construction and therefore could benefit from the higher demand due to new home construction in the United States.
A typical 2,400 square foot, single-family home requires approximately 16,000 board feet of framing lumber and over 14,000 square feet of other wood products including plywood, particleboard and fiberboard, according to the Idaho Forest Products Commission. As a result, timber is one of the most essential commodities used in the homebuilding industry.Here are some ways for investors to build exposure:
iShares S&P Gbal Tiber & Fortry Ind Fud (NASDAQ:WOOD): With a net asset value of $196 million and a 0.48% expense ratio, this ETF is one of the most popular options for investors looking for exposure to timber. The index’s 27 holdings consist of 53% paper and forestry companies and 28% real estate companies.
Claymore Beacon Global Timber Index (NYSEARCA:CUT): With a net asset value of $170 million and a 0.65% ER, this ETF is another popular option for timber investors. The index holds 28 different companies that are 37.5% weighted in the United States and 72.6% weighted in materials [see also Timber Set to Soar Says Jeremy Grantham].
Plum Creek Timber Co. Inc. (NYSE:PCL): With a market capitalization of $6.8 billion, PCL is the largest publicly traded timber company in the U.S., holding approximately 6.6 million acres of timberlands across 19 different states. In 2011, the company generated revenues of approximately $1.167 billion.
The average single-family home uses an average of 439 pounds of copper, including 295 pounds of building wire and 151 pounds of plumbing tube, fittings and valves, according to the Copper Development Association. While the copper industry extends well beyond residential homes, the commodity could still see significant upside from a boom in homebuilding. Here are some ways for investors to build exposure:
iPath Dow Jones UBS Copper Total Return Sub-Index (NYSEARCA:JJC): With a market capitalization of $115 million and a 0.75% yearly fee, this ETN is the most popular way to play the copper market. The index consists of one futures contract on copper – the Copper High Grade futures contract traded on the COMEX.
iPath Pure Beta Copper (NYSEARCA:CUPM): With a market capitalization of $2.7 million and a 0.75% yearly fee, this ETN is a distant second to JJC in popularity, but uses a number of different expiration dates instead of a single futures contract with a single expiration date, like many commodity ETFs [see also Physical Copper ETFs? Not So Fast].