We have been pretty vocal about the choppy environment we’ve been in since early February – which is classic year 2 behavior after a big recovery off a previous bottom. 

And we’ve made it abundantly clear we have seen deterioration of breadth – as fewer and fewer stocks are moving to the upside, with even some stocks beginning to break to new lows. I’d go so far as to say we’ve experienced a stealth correction affecting global equities since the February high.

However, even during times like these, there are a few bright spots for investors to hang their hats.

Today, we’re going to take a closer look at one sector that has bucked the trend and very quietly moved to new all-time highs.

So buckle up!

As recently as April 9, 2021, the Real Estate sector was ranked as low as #10 out of the 11 broad sectors we consistently track. And as a result, wasn’t likely to show up on too many investors’ radars as the place to be seen. 

But pay attention, because Real Estate has moved up to #6 on a relative strength basis vs. the rest of the pack. And as we often say, where there is relative outperformance, there is usually absolute outperformance.

And RE hasn’t disappointed. Real Estate Investment Trusts, or REITs, have closed at new monthly highs in each of the previous 6 months. 

Here’s a price chart of the iShares U.S. Real Estate ETF IYR.

iShares U.S. Real Estate ETF – IYR

To the far right of the chart, we can see a pretty powerful and sustained move above the previous all-time closing high. IYR managed to break above that level briefly, prior to COVID’s assault, resulting in a failed breakout.

Is this time different? I don’t know and I promise you, no one else does either. What I can say is REIT prices, like anything else, react to market conditions. And it may be that REITs are moving higher in response to a lack of alternatives.

What I mean is, if you follow Treasures, you’ll notice that prices are rising and yields are collapsing. So investors are left with a choice; either accept lower yields, against a backdrop of higher inflation OR look for alternatives to low-yielding Treasuries. And one of those alternatives are higher-yielding dividend-paying REITs. So that would be a logical reason for REIT prices to surge.

Regardless of the reason, REIT prices are rising sharply.

In the performance chart below, I’ve added several REIT ETFs from our sector matrix and compared their performance against the broader S&P 500 index. These REITs are available to investors who want to consider diversifying holdings into the world of Real Estate.

Year-to-Date Returns:

While the S&P 500 has gained a respectable 18.16% return YTD, the top-performing REIT – the Nuveen Short-term REIT (NURE) has nearly doubled the return of the S&P 500 index.

The story remains constant through various time frames – as I illustrate below with a 3-month and 1-month chart of the REIT fund’s performance.

3-Month Performance:

1-Month Performance:

For investors more interested in individual stock alternatives, the chart below illustrates the performance of five stocks from our RE sector matrix that could be explored further.

All of these names have crushed the S&P 500 year-to-date. And that’s exciting. However, this isn’t just about a stock outperforming the S&P index – it’s about tracking sector strength. It’s about utilizing a proven process that will guide you to the strongest sectors found in the strongest markets. 

History is littered with investors who picked “good stocks” in weak sectors who still lost money.  Yet, quite often, choosing even a mediocre stock in a strong sector has led to profitable trades.

If you want to know what institutions (the smart money) are thinking – watch the sectors.

Thanks for reading. Be sure to check back next week to see what the technicals tell us!

Michael Reilly, CFP
Certified Financial Planner

PS:  It’s that time of the year again.  We are opening the doors to new investors who have investment portfolios valued over $500,000.  Is your investment advisor giving you the professional service that you deserve?  You can lock in your spot today if you’d like to schedule a free consultation with a risk management specialist at Rowe Wealth management. Click here to schedule a free consultation.

Through relative strength analysis, we uncover the strongest asset classes, sectors, and industry groups that are in uptrends and showing the potential for continued profits.

As an investor, your success and profits are often tied to your ability to adapt to ever-changing market conditions – and to the asset classes and sectors attracting the most institutional demand.

And that’s what Adapt Weekly has set out to do – to highlight market changes and give investors like you an edge, and the opportunity to profit tactically from what’s working and what’s not.