This ETF Could Take Off Once Interest Rates Come Down

When interest rates start coming down in the U.S. is debatable. Whether it happens this year or next year is the big question. And with the economy growing at a rate of 2.8% for the second quarter, surpassing expectations, a rate cut may be less likely this year.

But now could be a good time to put money into investments which could rally once rates start coming down. If you wait until they actually come down, you may end up missing a good chunk of the rally. One sector of the market which could benefit from a drop in interest rates is housing. Demand for new homes could accelerate as interest rates come down, making them more affordable.

One exchange-traded fund (ETF) that gives investors great exposure to stocks involved in the housing market is the SPDR S&P Homebuilders ETF (NYSEArca:XHB). The fund gives investors access to a wide range of housing stocks, including companies which are involved with building products, home improvement, household appliances, and other housing-related categories. These are all stocks which could benefit from a heightened demand for new homes as it could trigger a ripple effect for the entire sector.

There are 35 holdings in the fund but no stock makes up for even 4% of the portfolio’s overall weight, giving investors some good diversification and not too much exposure to a single holding. The top three stocks in the fund as of now are D.R. Horton (NYSE:DHI), Tri Pointe Homes (NYSE:TPH), and KB Home (NYSE:KBH).

Year to date, the SPDR S&P Homebuilders ETF is up 23% and over the past five years it has climbed 180%.