REIT ETFs Recover on Declining Bond Yields
NEW YORK (ETF Expert) -- The 10-year Treasury flirted with a yield of 2.75% as recently as last week. That was before Federal Reserve Chairman Ben Bernanke did the Texas Two Step, clarifying the central bank's intention to suppress interest rates for an extended period.
Bernanke's habituated partner in the rate dance? The yield-hungry investor who is addicted to low investment grade yields in order to profit from ownership in high yield (junk) bonds, preferred shares as well as real estate investment trusts.
Now that Bernanke is emphasizing easy money for the foreseeable future, the 10-year is back down around the 2.5% level. This has offered market participants the opportunity to bid up the price on their favorite income producers once again. In particular, REIT ETFs have been attracting the lion's share of enthusiasm.
Another way to look at momentum in REITs is through a price ratio. For instance, the
SPDR DJ Wilshire REIT
(RWR) - Get Report
:
S&P 500
price ratio shows REITs bottoming out near June 21, when Ben Bernanke last stood by the notion that monetary stimulus would be reined in by the end of 2013. The S&P 500 logged its worst drop in roughly 18 months in that trading session. Shortly thereafter, however, weaker-than-expected GDP data as well as hints from other Fed officials began
casting doubt on a Fed tapering.
Ever since, funds like RWR and
PowerShares KBW Premium Yield Equity REIT
(KBWY) - Get Report
have had price momentum in their favor.
Another reason for optimism that the REIT recovery will hold is the asset grouping's ability to hold above a 200-day trendline. For example,
First Trust S&P REIT
(FRI) - Get Report
fell below its long-term moving average in June, but reclaimed an uptrend a few trading days later. FRI has held onto that uptrend for three weeks already, currently residing 6% above its 200-day moving average.
Virtually all of the different REIT subcategories have responded positively to the Fed's change of heart as well as the pullback in the 10-year yield; retail, residential and high-yield equity have rebounded as robustly as the broader asset class.
The one exception? Mortgage REITs. Funds like
iShares FTSE Mortgage REIT
(REM) - Get Report
and
Market Vectors Mortgage REIT Income
(MORT) - Get Report
are still coping with the possibility that short-term borrowing costs have already risen too high, damaging the spread between those costs and mortgage debt. What's more, the value of the mortgage bonds in current portfolios may have declined substantially, requiring many companies to cut their lucrative dividends.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.
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