U.S. REITs Led Gains For Major Asset Classes Last Week
James Picerno | Jun 17, 2019 07:30AM ET
Securitized real estate shares in the US led a partial rally in global markets last week. Real estate investment trusts (REITs) posted a fractionally higher return over the second-best performer: bonds in emerging markets. Overall, returns for the trading week ended Friday, June 14, were mixed for the major asset classes, based on a set of exchange-traded funds.
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Vanguard Real Estate (NYSE:VNQ) closed at a new record high at last week’s close. Upside momentum has lifted the ETF in eight of the past ten calendar weeks.
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The prospect of flat or falling interesting rates has fueled interest in REITs, which tend to offer relatively high yields. VNQ’s trailing one-year yield is just a few basis points below 4%, according to Morningstar.com. That’s nearly twice the level of the benchmark 10-Year Treasury’s 2.09% current yield via Treasury.gov.
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The Federal Reserve this week is expected to leave its target rate unchanged at a 2.25%-to-2.50% range in Wednesday’s policy announcement. Fed funds futures, however, are pricing in an 83% probability of a rate cut at the July FOMC meeting, according to CME data.
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Last week’s second-best performer among the major asset classes: emerging-market debt. VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) gained 0.75% last week, posting its fourth straight weekly advance.
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Half of the major asset classes posted losses last week. The biggest setback: foreign inflation-indexed government bonds. SPDR FTSE International Government Inflation-Protected Bond (NYSE:WIP) shed a hefty 1.5%.
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An ETF-based version of the Global Market Index (GMI.F), an unmanaged benchmark that holds all the major asset classes (except cash) in market-value weights, rose fractionally last week.
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For the one-year trend, US REITs continue to hold the lead by a wide margin. VNQ’s total return for the past 12 months at last week’s close: a strong 17.4%.
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The second-best performer for the trailing one-year period is a distant 7.5% total return for a broad set of investment-grade US bonds via Vanguard Total Bond Market (NYSE:BND).
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The deepest one-year loss for the major asset classes: broadly defined commodities. The iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) has lost 14.6% over the past 12 months (252 trading days).
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Meanwhile, GMI.F is up a modest 2.3% for the trailing one-year period.
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Profiling the major asset classes in terms of price momentum shows that the across-the-board upside bias has recently cracked, although most ETFs listed above continue to enjoy a bullish tailwind. The analysis is based on two sets of moving averages. The first compares the 10-day moving average with its 100-day counterpart — a proxy for short-term trending behavior (red line in chart below). A second set of moving averages (50 and 200 days) offers an intermediate measure of the trend (blue line). As of last week’s close, a majority of funds are posting a bullish profile.
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