Plenty of interest-rate sensitive asset classes and sectors struggled last year against the backdrop of the Federal Reserve’s first interest rate hike in nearly a decade, but with expectations rising that the Federal Reserve may not be able to raise rates this year, rate-sensitive asset classes have some momentum.
That includes real estate stocks and the corresponding exchange traded funds, such as the Vanguard REIT ETF (NYSEArca: VNQ). Expectations for higher interest rates usually drag on REITs as the dividend-yielding equity asset look less attractive relative to safer government bonds in a rising rate environment.
Some analysts have also dismissed claims that there is a bubble in the real estate space where prices have been rising, contending that the higher prices reflect the dearth in supply. While the Federal Reserve is moving toward interest rate normalization, the Fed has reassured markets that it will make gradual hikes.
VNQ “trades with an expense ratio that is 0.12%, which is lower than 91% of the funds with similar holdings. The fund’s managers seek to track the return of the MSCI US REIT Index by investing in companies that purchase properties such as office buildings, hotels, and storage. Taking a look at the weekly chart below, you can see that the fund is trading within an extremely strong uptrend. The recent pullback has sparked concern among some long-term investors, but the proximity to the major support of the long-term trendline and 200-week moving average could be providing an ideal entry point based on the risk/reward,” according to Investopedia.
Rents have increased by over 20% since the start of 2010, and most economist expect 2016 to be another strong year.