Despite broader market doldrums due to renewed trade tensions, the real estate sector has been pretty steady this month. The outperformance was mainly powered by the Fed’s easy money policy stance and heightened trade tensions, which in turn triggered a safe-haven rally in August (read: Grab These Safe Haven ETFs Amid Intensifying Trade Spat).
Stock market turmoil weighed on SPDR S&P 500 ETF (SPY - Free Report) , Invesco QQQ Trust (QQQ - Free Report) and SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , which have lost about 3.4%, 4.5% and 3.2%, respectively in the past 10 days (as of Aug 9, 2019). On the other hand, the largest real estate fund Vanguard Real Estate Index Fund ETF Shares (VNQ - Free Report) has added more than 2.9% during this timeframe. Many funds are hovering around a 52-week high.
Let’s delve a little deeper.
A Dovish Fed
At July-end, the Fed put the first rate cut since 2008 into effect. The Fed lowered the benchmark interest rates by a modest 25 bps to 2.00-2.25%. The U.S. benchmark treasury yield slumped to 1.74% on Aug 9 from 2.66% noticed at the start of the year to reflect renewed U.S.-China trade tensions and a safe-haven rally (read: Play Global Bond ETFs to Join Central Banks' Rate Cut Euphoria).
This was a huge positive for the real estate stocks and funds as these are rate-sensitive in nature and perform well in a falling-rate environment. This is because residences can be purchased and financed with a monthly mortgage payment. With mortgage rates spiraling down, real estates have every reason to cheer up (read: Top ETF Stories of July).
Upbeat U.S. Economy
The domestic economy is on decent footing with a tightening labor marker and higher consumer spending, thereby brightening the prospect of the real estate sector. This is because growth in the economy translates into greater demand for real estate, higher occupancy levels and higher rent growth. U.S. residential rent values accelerated for nine months in a row in 2019 (see: all the Real Estate ETFs here).
REITs have to pay at least 90% of their taxable income for dividends to shareholders, so they are a great option for income investors looking for steady payouts. The increase in earnings resulted in higher dividends for REIT investors. Notably, ETFs like Global X SuperDividend REIT ETF (SRET - Free Report) yields as high as 8.01% annually.
Since the Fed has been cutting rates to boost inflation, one must stuff inflation-protected assets in his portfolio. As inflation rises, purchasing power declines but prices of home values and rents normally rise. That is why, real estates are considered as inflation-protected assets and are worthy of investing in right now with a long-term view.
ETFs in Focus
Below we highlight a host of real estate ETFs that added in the range of 3% to 4% in the past 10 days and hit a 52-week high.
iShares Residential Real Estate ETF ((REZ - Free Report) — Up 4.1%
S&P 500 Real Estate Sector SPDR (XLRE - Free Report) — Up 3.9%
iShares US Real Estate ETF (IYR - Free Report) — Up about 3%
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