I want to thank Geoffrey Ching for spotting an error in my post, "How to Make More Returns on REITs." He even came up with what I did wrong; my signal was off by one month, producing returns way too good to be true. So is the strategy wrong?
No. It's still a good strategy, just not astounding. Here's the double quintile for mortgage REITs:
And for equity REITs:
Here's the return graph for equity REITs:
And that for mortgage REITs:
It feels intuitively right that Mortgage REITs don't beat equity REITs, even with a better strategy for both. The momentum strategy boosts the returns on mortgage REITs from 5.1% to 11.1%. For Equity REITs it moves from 12.0% to 14.0%.
I don't wonder at this result. Indeed, my shame is that I didn't probe the last result more. This is still useful for those who would pursue momentum, just not as useful as the first article. And with that, I apologize to my readers for my prior error. It is my policy to correct errors once I am convinced of them.