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Matthias Knab, Opalesque: Contrarian Outlook publishes on Harvest:
What a difference three months makes. Back in the summer, real estate
investment trusts (REITs) were all the rage—especially after a dismal
May jobs report put the final nail in the coffin of a summer rate hike.
Fast-forward to today, and we’re looking at a rate hike that’s a 72%
certainty at the Fed’s December
It’s no coincidence that the air has gone out of the SPDR Dow Jones REIT
ETF (RWR) , a popular REIT index fund, as that late-year increase has
grown more certain.
RWR’s Big Rise—and Fall
It’s a classic case of the herd falling for an old myth: that REITs
underperform when interest rates rise.
The truth is, in the last rising-rate period, from July 2004 to June
2006, RWR actually gained 44%. And either way, this time around we’re
not going to see rate hikes anywhere near as steep as we did back then.
The bottom line? The latest pullback has served up a terrific buying
opportunity. In fact, we can now buy RWR for less than we could buy the
index at the beginning of the year! This is great news for income
investors.
There’s just one problem: a lot of the REITs RWR holds are still
overvalued.
This is the nature of index funds; you’re getting the whole sector
without being picky. Passive-investing advocates claim this creates a
diversified portfolio that can resist market downturns, but that’s not
exactly true. You’re far better off taking a more...................... To view our full article Click here
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