Toro

REITs: An Update

tl

Your point is well taken. If you have the flexibility and the skill to trade around the position and add value that way, good for you. Due to restrictions at my firm, I can't jump in and out of positions. Also, it is not my initial position. I went massively short REITs last winter, covered in January then re-established a smaller position in February. I was looking to cover in March but the SRS didn't hit $130 as I expected. I have tended to do pretty well being value conscious, but it didn't work out that way.


stc

I calculate FFO by downloading components to calculate the metric from Bloomberg. Maybe I'm doing it wrong, I don't know. But I am more interested in how they compare to stocks, as well as using other metrics such as dividend yield, cash flow, etc. I have also found over the years that FFO can differ from analyst to analyst, just like the term "free cash flow" often does. Goldman put out a piece during the week saying REIT FFO was 16x, which is helluva lot different than mine, and stating that historically, REITs have traded at 10x-11x, so they think valuation is even more stretched than I do. Obviously, use the calculation that works best for you.


John

I'm not sure what the time frame is, other than to say I think the market is in a trading range for a couple of years, maybe with a downward bias. There certainly could be more upside from here as the path of least resistance is up at the moment. I think earnings will come in weaker than expected over the year as analysts are expecting growth of ~5%. I think that is too high given the current environment. I don't believe any economic collapse is coming, but I think the economy will move in fits and starts and grow below trend for some time. On underperformance, REITs have returned double the market since they hit their low in January. Of course, they fell over 40% in 2007, but that was after a monster run the previous five years. A month ago, I thought that REITs would probably trade in line or so with the market as valuations had gone from being idiotic last year to a bit expensive. Now they are getting expensive again. I think investors are going to be sorely disappointed in the IRRs investing in real estate, and expect stocks to outperform REIT over the next ~5 years.

T.

REITs: An Update

stc

The data comes from Bloomberg. I use the components of the IYR and calculate the data using a weighted average. It may not represent the actual IYR. For example, the actual dividend yield for the IYR is lower than what I compile out of Bloomberg. I also similarly compile data for all the REITs in the Russell 3000 and do a similar calculation, which provides slightly but not dramatically different results.

I think the path of least resistance in the near term is up. I had written not too long ago that I did not think REITs would underperform the broad market, and that I was using it as a market hedge as much as anything. However, since the Dow Jones US Real Estate index is up over double the market since it hit its low in January, I am beginning to think it will underperform over the intermediate term.

The Oversold U.S. Market Gets Even More Oversold

Thanks for the comments.

I do believe that we are setting up for a very hard bounce in the near future. I just don't know if it is at these levels or 10% lower.

The Oversold U.S. Market Gets Even More Oversold

Bill Shivers

You are absolutely correct. I did not phrase it properly.

For whatever you have used it for, I have found MACD and other technical indicators useful at extremes. I want to see many different indicators pointing at extremes. What I was trying to get across in the article was that MACD - and other indicators - may be at an extreme, but they have gotten more extreme in the past.

Apparently, judging by the comments, I did a poor job of doing so.

The Oversold U.S. Market Gets Even More Oversold

Oh, and just to remind readers, most of what I right is fundamental. You can see the two links at the top on the left for other SeekingAlpha articles and at my site. I was trained at one of Canada's best buy-side shops which didn't even look at what the market was doing on any given day, instead looking deep into the company and financials back ten years and forward five. However, I have found that for short-term buying and selling, fundamentals are useless and what matters are the technicals. In the long-run, however, what matters most are the fundamentals. Technicals help you with your entry and exit points but fundamentals are why you invest.

The Oversold U.S. Market Gets Even More Oversold

I just wanted to re-iterate this phrase

"One of the many metrics I use to gauge the market"

I was highlighting one of many.