US REITs Led Most Major Asset Classes Higher Last Week

Last week delivered another positive run for most of the world’s risky assets. Although the gains were relatively modest vs. the weekly surge through Oct. 9, the generally bullish bias for the five trading days through Oct. 16 marks a second week of higher prices for the major asset classes, based on a set of representative ETFs.

Leading the pack higher: US real estate investment trusts for the week just passed. The 1.3% total return for the Vanguard REIT (VNQ) is the best performance, edging out the 1.0% increase for foreign corporate bonds via PowerShares International Corporate Bond ETF (PICB). In third place: emerging-market stocks, which added another weekly gain after the previous week’s hefty rise.

The big loser last week: commodities, broadly defined. The iPath Bloomberg Commodity ETN (DJP) shed 1.7%.

The recent rebound in asset prices is starting to bring back positive comparisons in the year-over-year scorecard. Five of the major asset classes via ETF proxies are now showing modest gains for the year through Oct. 16. US REITs (VNQ) are at the front of the line here as well, posting a nearly 12% total return for the trailing one-year period (252 trading days) through last week’s close.

What’s behind the popularity of REITs these days? Two possible explanations are on the short list. One is the ongoing allure of relatively high yields at a time of unusually low interest rates. Morningstar reports that VNQ’s trailing 12-month yield is 4.14%–double the payout rate for the benchmark 10-year Treasury as of Friday (Oct. 16).

A second source of support for REITs: an attractive landscape for mergers and acquisitions. Institutional Investor notes that the recent discount in the price of REIT shares relative to the value of the underlying properties has triggered a “buying spree,” including three acquisitions by the Blackstone Group. The II article advises: