RSSReal Estate ETFs: Why They've Been Surprisingly Safer in '08
By Gary Gordon | September 03, 2008 | 6:49 PM | 0 Comments
If you've been burned by the commodity bear this summer... raise your Blackberry. Come on, now. There should be more gadgets in the air than that.
I am including iPhone owners. You know that the commodity sell-off nailed your portfolio as well.
Granted, you may have locked in smaller gains or limited the pain through the use of stop-losses. That'll always be the one thing that investors can do to control downside risk.
Nevertheless, energy and materials failed to provide the sector safety that many viewed as untouchable. Over the summer, however, the U.S. dollar strengthened. $150 crude / $4.00+ at the pump proved to be a breaking point. And recessionary forces moved overseas.
Suddenly, we don't seem to need as much "stuff" from the ground. At least not at the prices responsible for runaway inflation.
Still, the housing bust seems destined to head into '09. What's more, financial companies still seem to be flailing in the ocean like a swimmer in a Jaws sequel. Shouldn't homebuilders and real estate investment trusts (REITS) also be feeling the bite?
Who would have thought, for instance, that through the first 8 months of the year, State Street's Home Builders Fund (NYSE: XHB) would log a 2% YTD gain? Who could have called the Vanguard REIT Index Fund's (NYSE: VNQ) marginal victory of 0.5% in the positive column, when the broader market is down double digits in the blood red?
Whether the market is rational or irrational is not the point here. The reasons for the real estate sector outperformance, particularly in the less volatile REIT arena, are twofold. First, these investments took their lumps in 2007... and helped provoke the bear out of hibernation. (Bargains often present themselves when prior year beat-downs are substantial.)
More importantly, though, we're witnessing a classic case of sector rotation. The worst stuff becomes the better stuff... and vice versa. (I discussed this sector rotation trend back at the start of June.)
Put another way, the worst performers in 2007 were real estate trusts, homebuilders, consumer discretionary, retail and financials. Indeed, financials have yet to truly benefit from sector rotation, but the numbers on the others speak volumes (1/1/08-8/31/08):
| State Street Home Builders (XHB) | 2% | ||||
| Vanguard REIT Index (VNQ) | 0.50% | ||||
| SPDR Retail (XRT) | -4.00% | ||||
| Consumer Discretionary Spending (XLY) | -6.70% | ||||
| S&P 500 | -12.64% | ||||
| Dow | -12.97% | ||||
Let's face it... most investors have not wanted to touch real estate or the consumer with a twenty-foot pole. After all, home price declines and the inability to tap additional credit has made all of us feel a little less wealthy. And yet... the broader market is far more disturbed than the above-mentioned sectors.
I'm not advocating a far-reaching revision to long-term investment themes. The world's still going to need its stuff. And valuations on energy/resources/materials will catch investor attention in the not-so-distant future.
At the same time, it is foolish to ignore obvious trends; that is, whether the consumer has been weakened, or whether home prices struggle to find a bottom, "REITs" and "Retail" may be better than you think.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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