UK Housebuilders are extremely popular among retail investors. They are an exciting investment prospect, and for good reason. Over the past 5 years, the Household Goods & Home Construction sector has outperformed the UK 100 Index by almost 30%. Talk about a big beat!

Over the past year, this out-performance may have cooled a bit. The sector merely matched the UK Index . The good news, however, is that since the turn of the year, the sector (which admittedly includes Reckitt Benckiser) is still 2% ahead. The driver for calmer performance is … Brexit. Lack of clarity about the UK’s departure from the EU means demand for housing is uncertain.

This is particularly acute in the key London market where the proportion of foreign buy-to-let investors is much higher . The average selling price is also much higher here.

Does that mean the UK Housebuilders are no longer an attractive investment? An element of caution is always useful, but there are still plenty of opportunities to trade. Even in the current environment.

The individual Housebuilders have been very strong lately. Taylor Wimpey shares are up 29% this year, while Barratts and Bovis Homes are up 27%. Meanwhile, the UK 100 is merely 8.3% higher.

What’s dragging on sector performance? Surprisingly, only one construction stock is in the red: retirement builder McCarthy & Stone, down 8.5% year-to-date. Others trade in-line or better than the UK Index , up a very respectable 10 to 15%.

Shares up 20-30% in less than 4 months is strong performance. But no stock, however attractive, will rise forever. There will be negative headlines (again, remember Brexit). There will be hiccups from trading uncertainty or regulatory changes.

Finally, it is natural for traders to take profits after a rally. You can liquidate your position in full to re-invest elsewhere. You can exit in tranches, crystallising some of the profits while letting the rest run. Profit taking, if there is lots of it, can mean prices fall. This is a perfectly normal trading pattern, supply and demand.

Most Housebuilders are now 5-10% back from their 2019 highs. With the Brexit deadline just a week away, it’s no wonder we’ve seen a pullback. Will this weakness prove longer-lasting? Or will the Housebuilders regain their momentum? Could they resume their 2019 climb to outperform the UK Index ?

Have you traded any of the Housebuilders recently? Which was your best performer? Ever wondered how your favourite stocks’s performance compares to the rest of the sector, as well as to the UK Index ?

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Artjom Hatsaturjants, Research Analyst, 21 March 2019