What Could Happen To The Home Builders’ Sector In 2013

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Canada’s Bank of Nova Scotia (NYSE:BNS) put out its 2013 market forecast at the beginning of December. Its analysts see the S&P 500 rising 10% in the coming year, double what Canadian investors should expect. The big reason for the outperformance south of the border according to the bank: “Attractive affordability and low inventories point to a sustained recovery in U.S. housing activity in 2013, a development that could solidify ‘Main Street’ confidence. A pick-up in housing data (starts, sales, prices) could represent the biggest threat to the bond bull market. Homebuilders and lumber companies should perform well.”

While it’s not a massive sample of analyst sentiment, I think you’ll find most of the professional opinion says pretty much the same thing. The housing recovery is real and gaining momentum. Forget the crystal ball. Here is my list of things that could definitely happen to the Home Builders sector in 2013.

 

Up, up and Away
Barron’s published an article June 11, 2012, almost halfway through the year, recommending investors get out of homebuilder stocks because the charts were showing a declining trend. As of June 11, the SPDR S&P Homebuilders ETF (ARCA:XHB) was up almost 15%. Who could blame the technical analysts for thinking a reversal was in order? Funny thing about technical signals, they’re often wrong. Over the next six months the XHB gained another 30% through December 14. Investors who followed the advice of Barron’s have approximately $3,549 less in their portfolio based on a $10,000 investment at the end of 2011. As we move into 2013, will Barron’s have the nerve to double down and recommend investors once more take their money off the table. Not if they’re smart they won’t. This is a housing recovery that’s likely to take several years to truly run its course.
 

Homebuilder Confidence
As we begin another year it’s nice to know that homebuilder confidence is at a six-year high. The National Association of Homebuilders chairman Barry Rosenberg says, “Builders are reporting increased demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country. Many potential buyers who were on the fence are now motivated to move forward with the purchase in order to take advantage of today’s favorable prices and interest rates.” One area investors might focus their attention in 2013 is in the Midwest where homebuilder confidence is strongest. Of all the large homebuilders, Pulte Group (NYSE:PHM) is your best bet as it does business in many of the Midwestern states.

SEE: Will Homebuilders Continue To Outperform?

Multi-Family Housing
The Demand Institute is a non-profit operated by the Conference Board in association with A.C. Nielsen. It produced a very interesting report in May 2012 about the housing recovery and what it would look like. The first point is that home prices will increase approximately 2.5% in 2013 and 2014 followed by increases of 3 to 3.5% in 2015 through 2017. Secondly, a big part of the recovery will be increased demand from buyers of rental properties. In previous housing recoveries, the primary demand came from buyers of homes for themselves. Therefore, in addition to investing in homebuilders, a big way to benefit from the recovery in 2013 is to own the individual stocks of multi-family real estate investment trusts (REITs) or exchange traded funds (ETFs) that own multi-family REITs. The iShares Residential REIT Capped ETF (ARCA:REZ) owns 34 stocks including Equity Residential (NYSE:EQR), the residential REIT headed by Chicago billionaire Sam Zell. One of 15 apartment REITs in the ETF, I’d be inclined to own the ETF in this instance. Whatever you decide to do, 2013 looks very promising.
 
Smaller Homes
According to the Demand Institute, the average size of a new home in 1980 was 1,700 square feet. By 2007, before the housing crisis kicked in, the average size ballooned to 2,500 square feet. Fortunately, saner heads appear to have prevailed as the average is slowly dropping. By 2015 it’s expected to be 2,150 square feet, about the same size of the average new home in 1995. Many of those buying smaller homes are people over the age of 50 who want less space and fewer hassles. Builders that cater to this market will also do well in 2013.SEE: How To Analyze Real Estate Investment Trusts (REITs)

The Bottom Line
The real fly in the ointment for the housing industry is what a solution to the fiscal cliffwill mean for people’s pocketbooks. All bets are off for housing until a solution is announced. After that it’s full speed ahead. The year ahead looks good for homebuilders.At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article

 

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Diversified Returns of the 12 Sector Indices

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 In the year-to-date, the 12 FTSE ST Sector Indices that cover the 161 stocks of the FTSE ST All Share Index have generated returns that ranged from 44.8% for Real Estate Holding & Development to -19.6% for Consumer Goods Index. The FTSE All Share Index has gained 15.9% over the period. Sorted by best performing FTSE ST Sector index, the largest stocks of each sector index are currently as follows:

  1. The Real Estate Holding & Development Index has gained +44.8% in the year-to-date. The biggest three stocks of the Index are Hongkong Land Holdings (H78), CapitaLand (C31) and Global Logistic Properties (MC0) which are all categorised to the Real Estate Investment & Services Sector by the Industry Classification Benchmark (ICB). In the year-to-date the three stocks have gained +47.4%, +54.8% and +52.1% respectively.
  2. The Real Estate Investment Trust (REIT) Index has gained +31.1% in the year-to-date. The biggest three REITs of the Index are CapitaMall Trust (C38U), Ascendas REIT (A17U) and CapitaCommercial Trust (C61U). In the year-to-date the three trusts have gained +21.2%, +25.7% and +46.0% respectively. This does not take into account dividend distributions.
  3. The Financials Index has gained +28.6% in the year-to-date. The biggest three stocks of the Index are DBS Group Holdings (D05),Oversea-Chinese Banking Corp (O39), United Overseas Bank Ltd (U11) which are all categorised as Banks by the ICB.  In the year-to-date, the three locally incorporated banks have gained +22.2%, +16.2% and +19.8% respectively. The FTSE ST Financial Index also includes the stocks of the Real Estate Holding & Development Index and the REIT Index.
  4. The Industrials Index has gained +22.5% in the year-to-date. The biggest three stocks of the Index are Jardine Matheson Holdings (J36), Jardine Strategic Holdings (J37), and Fraser & Neave (F99) which are all categorised as General Industrials by the ICB.  In the year-to-date, the three stocks have gained +26.7%, +27.6% and +48.2% respectively.
  5. The Oil & Gas Index has gained +16.1% in the year-to-date. The biggest three stocks of the Index are Keppel Corp (BN4), SembCorp Marine (S51) and SembCorp Industries (U96) which are all categorised as Oil Equipment, Services & Distribution by the ICB.  In the year-to-date, the three stocks have gained +9.1%, +14.1% and +23.2% respectively.
  6. The Utilities Index has gained +8.5% in the year-to-date. The biggest three stocks of the Index are Hyflux (600), Gallant Venture (5IG) and United Envirotech (U19) which are all categorised as Gas, Water & Multiutilities by the ICB.  In the year-to-date, the three stocks gained +9.1%, +12.5% and +15.4% respectively.
  7. The Telecommunications Index has gained +4.3% in the year-to-date. The three stocks of the Index are Singapore Telecommunications (Z74), StarHub (CC3), M1 (B2F) which are all categorised as Mobile Telecommunications by the ICB.  In the year-to-date, the three stocks have gained +2.6%, +24.7% and +4.8% respectively.
  8. The Technology Index has gained +1.7% in the year-to-date. The biggest three stocks of the Index are LionGold Corp (A78), CSE Global (544) and DMX Technologies Group (5CH). In the year-to-date, the three stocks generated mixed performances of +19.5%, +13.3% and -10.6% respectively. Liongold is categorised as Technology Hardware & Equipment by the ICB while CSE Global and DMX Technologies Group are categorically sectored to Software & Computer Services.
  9. The Consumer Services Index has marginally declined -0.8% in the year-to-date. The biggest three stocks of the Index are Jardine Cycle & Carriage (C07), Genting Singapore PLC (G13) and Singapore Airlines (C6L). In the year-to-date, the three stocks generated mixed performances of -2.0%, -18.2% and +3.2% respectively. Jardine Cycle & Carriage is categorised as a General Retailer by the ICB while Genting Singapore PLC and Singapore Airlines Ltd are categorised to the Travel & Leisure sector.
  10. The Basic Materials Index has declined -4.6% in the year-to-date. The biggest three stocks of the Index are Midas Holdings (5EN), XinRen Aluminum Holdings (MN5), Li Heng Chemical Fibre Technology (E9A).  In the year-to-date, the three stocks have gained +13.6%, +12.5% and +14.6% respectively. Midas Holdings and XinRen Aluminum Holdings are categorised as Industrial Metals & Mining by the ICB while Li Heng Chemical Fibre Technology is categorically sectored to Chemicals.
  11. The Health Care Index has declined -10.1% in the year-to-date. The biggest three stocks of the Index are IHH Healthcare Bhd (Q0F), Biosensors International Group (B20) and Raffles Medical Group (R01) which are all categorised as Health Care Equipment & Services by the ICB.  In the year-to-date, the three stocks generated mixed performances of +15.0%, -23.1% and +14.6% respectively.
  12. The Consumer Goods Index has declined -19.6% in the year-to-date. The biggest three stocks of the Index Wilmar International (F34), Golden Agri-Resources (E5H) and Olam International Ltd (O32) which are all categorised as Food Producers by the ICB.  In the year-to-date, the three stocks have declined -36.6%, -14.0% and -12.0% respectively.

Grouping stocks by sectors is a practice that may assist investors spread portfolio risk and potential return across different industries.  For up-to-date information on the width and depth of the sectors that are represented by stocks listed on Singapore Exchange, investors can visit the Markets Tab at My Gateway here.

Source: SGX My Gateway

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Semiconductor ETF (SMH) rides on semiconductor growth in 2010

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Semicondutor industry is a cyclical industry. It is forecasted this industry will grow at a minimum of 10% in 2010. Recent semiconductor industry reviews:

  • Global semiconductor revenue could grow about 10 percent next year after two years of declines, as new computers and feature-jammed smartphones help boost chip demand – Gartner
  • Global pure-play semiconductor foundry revenue will decline about 11% in 2009, but then increase 21% in 2010 – iSuppli
  • The chip sector has been struggling over the last few years as the global economy, oversupply, and price pressures have stalled sales. But as the oversupply and under-demand cycle has stabilized, sales have improved, according to recent reports from the Semiconductor Industry Association.
SMH is the Semiconductor HOLDRs trust ETF and its top ten holding as follow:

SMH broke the long term Fibonacci 61.8% resistance of $24.763 and this level had become a very strong support level.
SMH is currently testing its another strong resistance at $26.24. If SMH can stay above this resistance turned support level, the uptrend is confirmed. Otherwise, it may retrace back to $21.809. SMH has not retraced back to this 61.8% Fibonacci level yet to build the base for future up trend. SMH is currently above 20D, 50D and 200D MA.
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