The stock market is raining on real estate's coming-out party.
At the end of August, real estate separated from the financial sector into its own sector. However, with real estate stocks — particularly real estate investment trusts (REITs) — lagging the market, the newly formed sector may not open to the type of fanfare it wants.
REITs have hugely outperformed the S&P 500 Index over the last 20 years, with the MSCI U.S. REIT Index returning 709%, versus 386% for the S&P 500. However, the relative return would have been even more impressive a few weeks ago. The REIT index has declined 2.5% since the end of July, while the S&P 500 has gained about 0.6%.
Weak recent returns aside, we plan to view real estate through the same lens used to analyze the other 10 sectors. With that in mind, the table below breaks down the new sector to gauge both its characteristics and its investment appeal.
No. of companies
Total stock-market value ($billions)
Avg. div. yield (%)
Average 12-month growth
Average valuation ratio
Average total return
Since July 31 (%)
12 months (%)
Average Quadrix scores
Notes: Quadrix scores are percentile ranks, with 100 the best.Â Â Â Averages exclude some outliers.
Here are some key points to remember:
• REITs drive this bus, accounting for 98% of the real estate sector's stock-market capitalization.
• Mortgage REITs, which own mortgage loans rather than real property, will remain in the financial sector.
• Real-estate stocks don't look particularly attractive, averaging Quadrix Overall scores of 48, well below the average of 59 for the broad S&P 1500 and 69 for the financial sector. Blame real estate's weakness mostly on REITs, which earn an average Overall score of 47.
• Real estate stocks are more expensive than the typical financial. REITs average Value scores of 30. Over the last 17 years, the REITs in our coverage universe averaged Value scores of 47.
Real estate accounted for more than 20% of the S&P 1500 Index financial sector before the split-off; real estate stocks in the index combine for a stock-market value of $839 billion. However, while the carve-out had a huge effect on money managers with a sector focus, individual investors might barely notice the split.
THE REITs WE WATCH
Below we list the 46 real estate investment trusts (REITs) in our Alternative Income Watch List (www.DowTheory.com/Go/Alt). The Watch List also features master limited partnerships (MLPs). Every REIT earns a ranking of A (above average), B (average), or C (below average). These ratings are relative to other REITs rather than the broad market; the Dow Theory Forecasts buy lists contain no REITs, and just one — Summit Hotel Properties ($14; INN) — is recommended in Upside, our sister publication that focuses on smaller stocks.
Your subscription to Dow Theory Forecasts comes with a Money-Back Guarantee. If at any time you are not completely satisfied, simply let us know and we will cancel your subscription for any reason. Any issues, special reports, or bonuses you have received are yours to keep. We will cancel your subscription and promptly refund any paid, unmailed issues.
If you have any questions or problems, please contact our dedicated customer service staff for assistance via e-mail at firstname.lastname@example.org or by calling 800-233-5922.
* You must be a current active subscriber to Dow Theory Forecasts to access our special subscribers-only features.
Dow Theory Forecasts® is a publication of Horizon Publishing Company
7412 Calumet Avenue
Hammond, IN 46324
Quadrix® is a Registered Trademark of Horizon Publishing Company
* Charts by MetaStock®. MetaStock is a registered trademark of Equis Int'l..