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Big REIT ETF is Must-See TV for Chartists


Exchange traded funds offering exposure to real estate investment trusts (REITs) were punished when 10-year Treasury yields spiked earlier this year.

As 10-year yields have receded, some of the luster has been restored to popular REIT ETFs such as the Vanguard REIT Index ETF (VNQ) and the iShares U.S. Real Estate ETF (IYR) , but the latter could be in some technical trouble. [Chart of the Day: REIT ETFs]

IYR is up 1.8% in the past three months, a performance that is slightly better than VNQ, but the iShares offering could be in the process of forming a dangerous chart pattern.

IYR is potentially forming a “head & shoulders topping pattern,” said noted technical analysts Chris Kimble of Kimble Charting Solutions. “This pattern is NOT true or complete at (3) until the neckline would break to the downside so….at this time the jury is still out on this pattern.”

Kimble notes that in 2006 to 2008, IYR formed a head and shoulders topping pattern that led to a nasty tumble for the ETF. The ETF would subsequently form the opposite chart pattern starting in 2008 before it rallied with the broader market in 2009.

IYR flirted with $75 in May before tapering talk jumped, sending the ETF below $60 in August. The Federal Reserve’s easy money, low interest rate policies after the global financial crisis sent investors scurrying into REIT ETFs because the funds offer yield and a chance for capital appreciation. REITs are required to distribute at least 90% of their taxable income to shareholders. [Top REIT ETFs for Yield]

IYR tries to reflect the performance of the Dow Jones U.S. Real Estate Index, which includes real estate companies and REITs. IYR has a 4.05% 12-month yield and a 0.46% expense ratio. The ETF is home to 98 holdings, the majority of which are specialty or retail REITs.

iShares U.S. Real Estate ETF

Tom Lydon’s clients own shares of VNQ