REITs on the Rise

The chase for yield makes finding a needle in a haystack look like child's play. In the absense of fixed-income yield, many investors have moved larger and larger allocations to REITs. There has been enough buying so far this year to propel the iShares Dow Jones U.S. Real Estate Index Fund (IYR) to a performance level almost twice that of the SPDR S&P 500 ETF Trust (SPY). Ironically, we are seeing the correlation between IYR and the iShares Barclays 20+ Year Treasury Bond Fund (TLT) increase above 0.50 once again. In fact, when we look at the TLT chart along with the performance of IYR, we can see the last time the correlation spiked this high, there was a sharp pullback in IYR shares shortly thereafter.

TLT to IYR Source: View Chart » View in New Window »

Near the beginning of July, IYR spiked higher, hitting its upper bollinger band. This is the third occurrence of such a move in the last four months, so it isn't all that unusual. The past two times have displayed differing immediate reactions, but a slightly longer time frame -- that is, two weeks later rather than a few days later -- showed the same type of reaction: selling.  It did not matter whether the IYR moved higher or sideways, about two weeks after hitting the upper bollinger band, it experienced a sharp drop....198 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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