The Real Estate Confusion

Lately, a frequently asked question in my advisor practice has been related to real estate.

Last week, the government reported that new homes sales fell 17% last year — the worst decline in 16 years.

However, sector real estate funds/ETfs gained on the day. In fact, the leader of the sector listings in my newsletter, based on a 4wk sorting, was real estate, as you can see from the following table:

The reason for that apparent discrepancy is that most readers look at all real estate as being the same, which is not the case. When you hear reports about a real estate recession or a downturn, so far this has been strictly related to residential property.

All sector real estate mutual funds/ETFs invest in REIT’s, which in turn are exposed to commercial and industrial properties and not residential ones. With the economy humming along just fine, based on the performance of the stock market, commercial real estate has rallied sharply due to higher demand and other factors.

Will this go on forever? Of course not. That’s why, for all of our positions, we have trailing stop loss points set up to protect ourselves from the downside whenever this market reverses its trend.

This may not be in the near future, but you have to be ready to act whenever the facts change.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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