Monday, February 11, 2019

Fw: REITs Acting Nothing Like Defensive Plays


Best ETFs: REITs Acting Nothing Like Defensive Plays
Real estate investment trusts often behave as defensive stock plays, but they've been moving with the broad market, helping those assets become some of the best ETFs.
 
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Seven exchange traded funds in this month's ETF Leaders screen are REITs, or real estate funds. All seven are forming V-shaped recoveries that mirror the general market indexes. Not only that, but the REIT ETFs are at or near new highs — way better than major market indexes that are 7% to 10% off prior highs.
Clearly, these funds are not playing the role of defensive assets. Normally, REITs gain favor in weak markets because investors can use their big dividends to make up for losses of capital. Yet, REITs came down sharply during the bear market of late 2018. The seven ETFs, however, fell 14% to 16% from their 2018 peaks, so they did fare relatively better than the whole market.
While the ETFs are near buy points, the fast decline and rebound that their charts have traced is not ideal. Such fast recoveries set up the possibility that shares will pull back to digest larger-than-normal gains. There's also the risk of a selling spree now that investors who bought at previous highs can break even on their investments.
One factor influencing REIT performance is interest rates. REIT dividend yields compete against bond yields. With the benchmark 10-year Treasury yield trending lower since November, REIT dividends become more attractive. The Federal Reserve has signaled a pause in rate hikes, which favors REITs.
Industry Outlook Mixed
The longer-term outlook for the industry is not dependent entirely on interest rates, and is mixed.
"U.S. REITs seem to lack a catalyst for outsized returns, given that commercial property prices, net operating income and occupancy appear to have peaked," Wells Fargo Investment Institute noted in a report. "The flip side to the U.S. economy (and REITs) having been more resilient is that they likely lack the same bounce-back return potential should the global macro overhangs get resolved."
Here's where the seven ETFs on the screen stand:
  • Schwab U.S. REIT SCHH is just above the 43.41 buy point of a double bottom base. The $5 billion fund tracks a mix of residential, retail, office and other types of REIT companies.
  • SPDR Dow Jones REIT ETF (RWR) is above a 96.96 buy point. The $2.77 billion fund tracks the same Dow Jones Select REIT index that the Schwab fund does.
  • IShares Cohen & Steers REIT (ICF) is in buy range of a 106.24 buy point from a cup base. The $2.06 billion fund is diversified among retail, residential, industrial, specialized and other types of REITs.
  • Fidelity MSCI Real Estate Index ETF (FREL) is above the 24.97 entry of a double bottom. The $715 million fund has more than 170 holdings in various types of REITs.
  • Vanguard Real Estate ETF (VNQ) has climbed above the 83.41 buy point of a base. The $53 billion fund owns nearly 200 stocks of different stripes.
  • IShares U.S. Real Estate ETF (IYR) is above an 83.09 buy point. The ETF is predominantly invested in REITs but also owns some real estate services, developers and other stocks. At $4.07 billion in assets, it is the largest of the seven ETFs.
  • IShares Global REIT (REET) is holding above a 25.76 buy point. The $1.49 billion fund has nearly 65% of assets in U.S. companies and the rest in Japan, Australia, Europe and other regions.
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Pei (Claire) Qiao | Mortgage Specialist Associate | RBC Royal Bank
On Behalf of Jason Wang | Mortgage Specialist | RBC Royal Bank
Office Burnaby Main Branch @ 4370 Kingsway Burnaby BC V5H 4G9
 
 
 

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