As some will recall, the overall sector weighting of the S&P 500 changed in September 2016 for the first time in years. This adjustment expanded the number of industries from 11 from 10 by separating real estate-related assets into a stand-alone group. The move was an early indication of the growing importance of exposure to real-estate, and in the article below we’ll take a look at several exchange-traded funds to determine if there are still opportunities to profit. (For more, see: Real Estate Investing: A Guide).
iShares U.S. Real Estate ETF
Traditionally, real estate investing was for the extremely wealthy given the enormous costs associated with owning property. However, with the invention of exchange-traded funds, it is now possible for retail investors to quickly and easily gain exposure to entire sectors with a relatively small investment. Fundamentally speaking, low mortgage rates, combined with low inventory levels have pushed U.S. home prices to a two-and-a-half year high. In fact, according to the S&P/Chase-Shiller U.S. National Home Price Index, home prices were up 5.8% year over year in December. Taking a look at the chart of the iShares U.S. Real Estate ETF (IYR), the well-defined triangle pattern has made it easy for active traders to determine the placement of their orders. Bullish traders will use the move above the resistance of $78.80 as an indication of a move higher, and they will likely look to protect against a sudden selloff by placing stop-loss orders below the lower trendline near $77.58. Active traders will also be keeping a close eye on the 50-day and 200-day moving averages because a bullish crossover will trigger the most well-known technical buy signal, known as a golden cross, which could be the catalyst needed to send prices higher. Currently, the averages are $0.22 apart, and the gap is closing quickly. (For more, see: Exploring Real Estate Investments: What Is Real Estate?)
SPDR Dow Jones Global Real Estate ETF
Broadening the view of the real estate market by looking globally, the fundamental and technical picture look similar to what is occurring across the U.S. Taking a look at the chart of the SPDR Dow Jones Global Real Estate ETF (RWO), you can see that the price recently broke above the resistance of an ascending triangle pattern. Interestingly, the resistance of the triangle coincides with the 200-day moving average, which increases the significance of the bullish price action over the past several trading sessions. Active traders will likely look to the crossover between the MACD and its signal line as confirmation of the breakout, and most will likely set their target prices near $52.02, which is equal to the height of the pattern added to the entry of $48.07. (For more, see: Analyzing Chart Patterns) .
Apollo Commercial Real Estate Finance, Inc.
Active traders who are interested in specific segments of the real estate market may benefit from checking out the various niche exchange traded funds that are available as well as the numerous real-estate investment trusts. One interesting example that could be worth a closer look is Apollo Commercial Real Estate Finance, Inc. (ARI). This REIT originates, invests in, acquires and manages assets relating to commercial real estate. Taking a look at the chart below, you can see that it is trading with an exceptionally strong uptrend and the move to a fresh 52-week high suggests that the bulls are in control of the momentum and there are little signals that suggest that the trend will reverse anytime soon. (For more, see: 5 Types of REITs and How To Invest In Them).
The Bottom Line
Investing in real estate is growing in importance as evidenced by the shift in the sector weightings of the S&P 500 in 2016. Based on the charts shown above, it appears as though there are plenty of opportunities for investors to take advantage of a strengthening real estate market. (For more, see: 3 Ways To Trade The Strength In Real Estate).
Disclosure: At the time of writing, Casey Murphy did not own any of the products mentioned.