U.S. Markets open in 4 hrs 47 mins

REIT ETFs Punished by Rising Rates Trade


The iShares U.S. Real Estate ETF (IYR) was down for the fifth straight session on Wednesday as investors sell REIT funds on expectations the sector will be damaged by rising interest rates.

IYR and other real estate funds such as Vanguard REIT Index ETF (VNQ) and SPDR Dow Jones REIT ETF (RWR) have seen trading volume accelerate this week.

“IYR continued higher into mid May, but peaked last week and fell sharply the last four days,” said StockCharts.com senior technical analyst Arthur Hill in a blog post Tuesday. “Interest rate sensitive issues are not having a good time right now.”

Another technical analyst, Chris Kimble at Kimble Charting Solutions, points out that IYR is breaking down from a so-called rising wedge, a bearish development.

Investors have hammered rate-sensitive sectors like REITs and utilities in May as Treasury yields rise and on speculation the Federal Reserve may step back from its bond purchases.

“REITs have been able to grow cheaply, but interest rates will eventually rise. High rates pressure dividend-paying stocks, including REITs,” says Morningstar analyst Abby Woodham in a profile of IYR.

The ETF has tumbled nearly 8% the past five sessions.

iShares U.S. Real Estate ETF

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.