2019 Real Estate ETFs Will Equal Under-Profitization Q1



In 2018 global real estate market returns provided very little protection for investors intent on finding protection via diversification plays. Geopolitical risks and other factors forced many investors to pursue opportunities across a plethora of geographic regions, but Real-estate-focused mutual funds and exchange-traded funds fell 6.16% on average for the year.

Real Estate Fund portfolio
ETF Financials Not Looking Good

In 2018 the S&P 500 index fell 6.24%, as some 48 U.S. real-estate ETFs, with total assets of $66 billion dipped into the questionable zone. This included the top 5 real-estated-focused ETFs: Vanguard Real EstateETF (VNQ), fVanguard Global ex-U.S. Real Estate ETF (VNQI), Schwab U.S. REIT ETF (SCHH), iShares Real Estate (IYR) and Real Estate Select Sector SPDR Fund (XLRE). So, investors looking to use real estate to build on stable portfolios were bitterly disappointed. The charts via U.S. News and World Report tell the tale better than words.

To spotlight the situation, we looked randomly for trusts with dynamic volatility. A good example of a tumbling investment, Pennsylvania Real Estate Investment Trust (NYSE:PEI) average daily volatility for this week is 5.76%. The shares of this trust plummeted -49.76% or -$6.23 from its last recorded high of $12.52 at closing on December 6th. Glancing at Vanguard (VNQ) today we find shares up slightly at $73.42, but almost $10 dollars beneath the $83.21 share price at close December 6th. While most major trusts have climbed a few points since the day before Christmas, the gains seem to be more of a PR damage control result than an actual value indicator.

The good news is, many experts still see the fundamental position for REITS, as indicated by Seeking Alpha’s most recent report:

“… despite tepid enthusiasm from investors, REIT fundamentals continue to improve and we don’t see any reason for this to change anytime soon. We view this as a great time for investors to pick up good REIT investments that could potentially enhance their portfolio income well into retirement.”

My view is a lot less enthusiastic. Back in Q3 of 2017 institutional investors sunk over $7 billion into the Vanguard REIT ETF. Today, we see key investors like Ellenbecker Investment Group jockeying for positions across the spectrum, which is an indication of ongoing volatility for me. Serious investors need to be able to read in between the public relations and industry narrative in order to truly understand ETFs and other investments. Take this story from a few days before the segment crashed. ETF Trends was telling the world how the funds were outpacing other investment types. And then BOOM. We find ETF and others tweaking a comeback for stocks like iShares Residential Real Estate Capd ETF (REZ), when the reality (Yahoo Finance) is a kind of sputtering stagnation.

Currently, the total U.S. ETF assets under management closed 2018 at around $3.4 trillion, and these investments will zig-zag back and forth to equal an under-profitised 2019 Q1.