Last week’s plunge in interest rates was a boon for the biggest real estate ETF.
The largest fund tracking real estate investment trusts, the Vanguard Real Estate ETF (VNQ), took in $427 million during the week ended July 6, its biggest weekly inflow since January 2017, as the yield on 10-year Treasurys dropped four basis points to 2.82%. The move was particularly notable because it was a four-day market week with the July 4 Independence Day holiday in the U.S.
The inflows continued this week, with another $115 million pouring into the ETF.
REITs are highly interest-rate sensitive investments that are more attractive in falling environments because of their high yields. As 10-year Treasurys climbed from 2.4% in January to more than 3% in April and May, investors fled real estate, pulling more than $1.5 billion from the $32 billion VNQ over the first five months of the year. But with yields tumbling from 3.1% to 2.8% in six weeks, ETF buyers have found the sector attractive again.
These funds have the smallest beta scores, either positive or negative, indicating the least variability from market returns.
“Longer-term trends are very much tied to rates and specifically the 10-year treasury yield,” Bloomberg Intelligence analyst Jeffrey Langbaum said. “Right now, the investor view is that the 10-year is sitting comfortably below 3 percent and REITs can do OK in that type of environment.”
