Real estate investment trusts (REITs) in the US led markets higher last week for the major asset classes, based on a set of exchange-traded products. The latest gain marks the second straight weeks that US REITs delivered the strongest performance.
Vanguard REIT (NYSE:VNQ) gained 1.9% for the holiday shortened four-day US trading week through Friday, June 1 — an outsized gain vs. the other major asset classes. The latest pop lifted VNQ to its highest weekly close since January.
Rising interest rates took a toll on the yield-sensitive REIT sector in this year’s first quarter, but the crowd appears to be rethinking the prospects for property stocks in Q2.
“If interest rates are going up because the economy is improving, that can be positive for REITs because landlords can raise rents to cover the rate increases,” advised Brian Cordes, a senior vice president at Cohen & Steers, an investment firm that specializes in real estate. In an interview with CNBC last week he predicted that the US economy will grow 2.9% in 2018 and so “we see the recent pullback [in REITs] as an attractive entry point to the asset class.”
Meanwhile, bonds in emerging market suffered the biggest setback last week among the major asset classes. VanEck Vectors JP Morgan EM Local Currency Bd (NYSE:EMLC) slumped 0.8%. The latest weekly dip left the ETF near its lowest close in more than a year.
A strengthening US dollar is widely cited as a key factor in the recent headwinds for emerging markets assets generally. “The dollar remains the single most important consideration for EM [emerging-markets] finances,” according to a report from Fitch, a debt-ratings consultancy, via The Wall Street Journal. Recent history certainly highlights this factor: the US Dollar Index is up almost 5% for the past two months vs. a nearly 9% slump in EMLC over that period.
For the one-year trend, US equities continue to hold the top spot for performances among the major asset classes. Vanguard Total Stock Market (VTI) is up a solid 15.3% over the past 12 months after factoring in payouts.
On the flip side, the latest weakness in emerging markets bonds has left this slice of global markets with the deepest one-year loss for the major asset classes. EMLC is down 1.9% for the year through last week’s close.
Ranking the major asset classes by drawdown still finds that broadly defined commodities are posting the biggest peak-to-trough slide. The iPath Bloomberg Commodity Total Return Exp 12 June 2036 (NYSE:DJP) is currently nursing a drawdown that exceeds 40%.
Note, however, that recent declines in emerging markets assets (stocks and bonds) have left these markets with steep drawdowns – exceeded only by the slide in commodities.
