Commercial real estate ETFs such as Vanguard REIT (NYSEArca: VNQ), iShares US Real Estate (NYSEArca: IYR) and SPDR Dow Jones REIT (NYSEArca: RWR) fell for a third straight week as investors pull money from dividend-paying sectors on rising interest rates.
The REIT ETFs have been popular this year with investors looking beyond low-yielding bonds in search of income. For example, VNQ is among the top 10 best-selling ETFs in 2013 with net inflows of more than $2.5 billion, according to Morningstar. The fund currently holds assets of nearly $19 billion.
VNQ slipped more than 1% in afternoon trading Friday even though the Dow rallied over 100 points. The ETF is down 10 of the last 12 trading sessions. The fund is also off 11% from its May high.
“Since equities peaked in May, real estate has taken the biggest hit. They led the turn lower and that is likely to continue given the damage now inflicted to the sector’s relative chart,” said technical analyst Tarquin Coe at Investors Intelligence in a newsletter this week.
“The ratio chart for the iShares Real Estate Fund (IYR) versus the S&P 500, has just confirmed a top formation. That activated pattern, which took three years to build, forecasts the sector will trade down to a relative level last seen in the second half of 2009,” he added. “It is often said that the stock market precedes the economy by nine months. If this chart is anything to go by, then talk of a real estate recovery is somewhat premature.”
Next page: Stock and bond ETF performance this week
Stepping back to look at the major U.S. equity indices, the S&P 500 was on track for a slightly weekly gain of 0.3% in afternoon trade Friday, the Dow added 0.5% and the Nasdaq Composite was flat for the week.
The Labor Department on Friday said the U.S. economy added 175,000 jobs last month, more than expected.
In bonds, the iShares 20+ Year Treasury Bond (NYSEArca: TLT) was down over 1% on Friday. Jon Hilsenrath, the noted Fed watcher at The Wall Street Journal, on Friday reported the central bank is likely to signal at the June policy meeting it is on track to start tapering its bond purchases later this year if the economic data holds up.
Friday’s job report “is in the sweet spot,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds, told Bloomberg News. “It shows investors that the economy is growing but not fast enough for them to be concerned that the Fed is going to start tapering its asset purchase program.”
In next week’s economic data, look for reports on wholesale inventories, the federal budget, retail sales, import and export prices, business inventories, producer prices, consumer sentiment and the account deficit.
Full disclosure: Tom Lydon’s clients own TLT.