For those trying to understand the reasons for the exceptionally strong relative strength of REITs, today’s WSJ offers some insight.
WSJ on the strength in the apartment sector:
The hottest REIT stocks in 2010 have been in the apartment sector: names such as Apartment Investment & Management Co. (AIV) and Equity Residential Properties Trust (EQR). Both companies reported quarterly earnings last week, and the shares have gained more than 30% this year.
A solid quarterly report from Equity Residential, which lifted its 2010 outlook, combined with improving market conditions “should have a positive impact on the overall apartment sector,” said Stifel Nicolaus analyst Rod Petrik. “The company appears well positioned to take advantage of positive market trends in the apartment industry.”
Stephen Swett at Morgan Keenan added, “We remain positive on apartments, relative to commercial REITs, as we believe the overall risks in the economy pose less risk to multifamily fundamentals at this time.”
Part of the bullish thesis for the apartment sector is that a soft economy and housing market have caused many to continue renting. The recovery in the multifamily sector “continues to gain momentum driven by lower resident turnover, higher occupancy levels, and accelerating pricing power,” said Raymond James analyst Buck Horne.
WSJ on investors’ hunger for yield:
Investors’ hunger for yield may also be lifting REITs, and some companies have raised dividends after cutting or eliminating them during the credit crunch.
“Investors are viewing REITs as a more attractive investment than they have in the past few years, given their yields compared to U.S. Treasurys and bonds,” said Morgan Joseph analyst Carol Kemple in a quarterly earnings preview.
(Click to Enlarge)
Source: StockCharts.com
As shown in the chart above, REITs have more than doubled the return of the S&P 500 since the beginning of this bull market in March 2009. Due to their strong relative strength, REITs are well represented in our Global Macro separately managed account and in the Arrow DWA Tactical Fund (DWTFX) and will remain so as long as this asset class retains strong relative strength.
To receive the brochure for our Global Macro strategy, click here. For information about the Arrow DWA Tactical Fund (DWTFX), click here.
Click here and here for disclosures. ICF, IYR, RWR and other real estate securities are current holdings in products managed by Dorsey Wright Money Management. Past performance is no guarantee of future returns.
