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Another Tough Week for Real Estate ETFs on Rising Rate Jitters


Commercial real estate ETFs such as Vanguard REIT (VNQ), iShares US Real Estate (IYR) and SPDR Dow Jones REIT (RWR) fell for a third straight week as investors pull money from dividend-paying sectors on rising interest rates.

The REIT ETFs have been popular this year with investors looking beyond low-yielding bonds in search of income. For example, VNQ is among the top 10 best-selling ETFs in 2013 with net inflows of more than $2.5 billion, according to Morningstar. The fund currently holds assets of nearly $19 billion.

VNQ slipped more than 1% in afternoon trading Friday even though the Dow rallied over 100 points. The ETF is down 10 of the last 12 trading sessions. The fund is also off 11% from its May high.

“Since equities peaked in May, real estate has taken the biggest hit. They led the turn lower and that is likely to continue given the damage now inflicted to the sector’s relative chart,” said technical analyst Tarquin Coe at Investors Intelligence in a newsletter this week.

“The ratio chart for the iShares Real Estate Fund (IYR) versus the S&P 500, has just confirmed a top formation. That activated pattern, which took three years to build, forecasts the sector will trade down to a relative level last seen in the second half of 2009,” he added. “It is often said that the stock market precedes the economy by nine months. If this chart is anything to go by, then talk of a real estate recovery is somewhat premature.”

Next page: Stock and bond ETF performance this week