Is PowerShares Dynamic Building & Construction Portfolio (PKB) a Hot ETF Right Now?

The PowerShares Dynamic Building & Construction Portfolio (PKB) made its debut on 10/26/2005, and is a smart beta exchange traded fund that provides broad exposure to the Industrials ETFs category of the U.S. equity market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is sponsored by Invesco Powershares. It has amassed assets over $283.87 M, making it one of the average sized ETFs in the Industrials ETFs. PKB, before fees and expenses, seeks to match the performance of the Dynamic Building & Construction Intellidex Index.

The index is comprised of stocks of U.S. building and construction companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factorsn.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.63%.

It's 12-month trailing dividend yield comes in at 0.20%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

PKB's heaviest allocation is in the Consumer Discretionary sector, which is about 42.20% of the portfolio. Its Industrials and Materials round out the top three.

Looking at individual holdings, Lennar Corp (LEN) accounts for about 5.25% of total assets, followed by Dr Horton Inc (DHI) and Pultegroup Inc (PHM).

The top 10 holdings account for about 46.3% of total assets under management.

Performance and Risk

The fund's year-to-date return has lost about -12.46%, and was up about 2.77% in the last one year (as of 04/25/2018). PKB has traded between $28.31 and $36.11 in the past 52-week period.

PKB has a beta of 1.20 and standard deviation of 17.94% for the trailing three-year period, which makes the fund a high choice in the space. With about 30 holdings, it has more concentrated exposure than peers.

Alternatives

PowerShares Dynamic Building & Construction Portfolio is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR S&P Homebuilders ETF (XHB) tracks S&P Homebuilders Select Industry Index and the iShares U.S. Home Construction ETF (ITB) tracks Dow Jones U.S. Select Home Construction Index. SPDR S&P Homebuilders ETF has $844.56 M in assets, iShares U.S. Home Construction ETF has $1.54 B. XHB has an expense ratio of 0.35% and ITB charges 0.44%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
 
SPDR-SP HOMEBLD (XHB): ETF Research Reports
 
ISHARS-US HO CO (ITB): ETF Research Reports
 
PWRSH-DYN BLDG (PKB): ETF Research Reports
 
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