(Bloomberg)—Last week’s plunge in interest rates was a boon for the biggest real estate exchange-traded fund.
The largest fund tracking real estate investment trusts, the Vanguard Real Estate ETF, or VNQ, took in $427 million during the week ended July 6, its biggest weekly inflow since January 2017, as the yield on 10-year Treasuries dropped four basis points to 2.82 percent. 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 on Monday, 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 Treasuries climbed from 2.4 percent in January to more than 3 percent 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 percent to 2.8 percent in six weeks, ETF buyers have found the sector attractive again.
“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.”
--With assistance from Tom Lagerman (Bloomberg Global Data).To contact the reporter on this story: Olivia Schaber in New York at [email protected] To contact the editor responsible for this story: Jeremy Herron at [email protected]
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