There’s increasing hope and optimism that rate cuts could be around the corner. And when that happens, there could be many types of stocks which benefit from a decline in interest rates.
One fund which contains a lot of them is the iShares U.S. Home Construction ETF (CBOE: ITB). This ETF, which tracks the Dow Jones U.S. Select Home Construction Index, focuses on companies involved in the home construction industry, including major homebuilders like D.R. Horton (NYSE:DHI), Lennar Corporation (NYSE:LEN), and PulteGroup (NYSE:PHM). ITB provides broad exposure to the housing market, with around 67% of its holdings in homebuilders and the rest in building materials suppliers and home improvement retailers.
Interest rates play a crucial role in the housing market. Lower rates typically lead to reduced mortgage costs, making home loans more affordable and stimulating demand for new homes. With recent economic data suggesting a slowdown in inflation, the Federal Reserve could ease its interest rate policy, creating a favorable environment for the housing sector. As rates decline, ITB is poised to benefit from increased home buying activity and a boost in new home construction.
ITB’s diversified exposure across the home construction value chain makes it a compelling investment choice, as now could be an optimal time to add the fund to your portfolio. Over the past decade, the fund has made an excellent place to invest in. Its 10-year returns are an impressive 411%, which is far higher than the S&P 500’s gains of 183% over the same period. Investing in the ETF before interest rates come down could setup investors for some great gains next year and beyond.