ETFs – the best way to meet asset allocation
Asset allocation is a primary factor responsible for investment returns. ETFs are a convenient way for investors to build a portfolio that meets specific asset allocation needs.
For example, an investor seeking an allocation of 70% stocks and 30% bonds can easily create such a portfolio with ETFs. In this article, we’ll see how sector-specific and sector-agnostic ETFs invest in Lennar Corporation’s (LEN) stock.
Lennar (LEN) is a major stock on the New York Stock Exchange with a market capitalization of $10 billion. It’s part of key stock market indices such as the S&P 500 index.
Consequently, Lennar sees allocation in major sector-specific homebuilder ETFs such as the SPDR S&P Homebuilders ETF (XHB). XHB has a 3.36% stake in Lennar. The iShares Dow Jones U.S. Home Construction Index Fund (ITB) has the highest exposure of 10.8%. The smallest homebuilding ETF, the Dynamic Build & Construction ETF (PKB), has exposure of 4.96% in the stock.
The SPDR S&P Homebuilders ETF (XHB) has an asset base of $1.9 billion and an expense ratio of 0.35%. The iShares Dow Jones U.S. Home Construction Index Fund (ITB) has an asset base of $2.1 billion and an expense ratio of 0.45%.
The holdings of a particular company in an ETF depend on the investment objective of the ETF. Consequently, sector-specific ETFs should have a higher exposure to companies in the sector than sector-agnostic ones. You can see the holdings of various ETFs in the above chart.
In addition to what we’ve already seen above, homebuilders such as Lennar (LEN) are also affected by a variety of government regulations. Investors should read Market Realist’s How housing regulations have shaped the market for investors to find out how those regulations affect homebuilders.