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REITs And Rates

|Includes: iShares U.S. Real Estate ETF (IYR), O, VNQ
Summary

ETF outflows should be expected, as should weakness.

This should continue, no rush to buy the dip.

Those with pricing power and escalators will do better, those without, not so much.

Long-term fixed leases are not always your friend (O no).

On Bloomberg today:

The $3.8 billion iShares U.S. Real Estate ETF, or IYR, is on pace this week for the most outflows in a year. The fund has lost assets for five straight sessions, with $530 million leaving between Monday and Wednesday. It went through a similar experience early last October, after 10-year Treasury yields jumped more than 30 basis points in four weeks.

“Most people are investing in real estate for the yield associated with those investments,” he said. “If rates are rising faster than these real estate companies can increase rents, then there can be some degradation in value there, and also maybe some movement from the defensive interest rate-sensitive sectors into less interest rate-sensitive sectors.”

Dave Lutz, managing director of JonesTrading, echoed that sentiment.

“As rates move higher, it diminishes the appeal of dividend paying stocks, like REITs and utilities, while boosting the appeal of other sectors like the banks,” he said.

The chart says:

O no!