EC Real Estate Is This Year’s Top-Performing Sector

Most reviews of the best-performing market sectors focus on capital appreciation. If we look at the first four months of 2021 through that lens, we’d have to say that Bitcoin—if you consider the cryptocurrency a sector—handily beat out all competitors. Now, we all know how volatile Bitcoin’s been, so it shouldn’t be surprising that it would have trouble topping the list on a risk-adjusted basis.

And indeed that’s true. Measured by its Sharpe ratio, Bitcoin comes in fourth. So, what sector was on top?

Real estate.  

That’s reflected in the performance of 28 real estate exchange-traded funds which have appreciated 15%, on average, through April with a mean 3.41 Sharpe ratio.

Most of the assets—fully 56%—are concentrated in the Vanguard Real Estate ETF (VNQ), a broad-based and cap-weighted portfolio of 175 constituents that attempts to represent the entire U.S. real estate sector. A third of VNQ’s weight is given over to large caps. With only 20% devoted to small-cap entities, mid-caps represent nearly half of VNQ’s heft.

The Vanguard portfolio appreciated 17% in the first four months of the year, earning a 4.34 Sharpe ratio.

Given the SPDR S&P 500 ETF (SPY) earned a contemporaneous 12% return and a 3.56 Sharpe ratio, VNQ’s performance doesn’t look half bad.

What looks better than half bad, though, are the real estate ETFs that overweight smaller outfits. Take the Invesco S&P 500 Equal Weight Real Estate ETF (EWREfor instance. Equal-weighting lightens the impact of the largest real estate investment trusts (REITs) in the portfolio. Seventy-five percent of the portfolio’s 30 REITs are mid-caps; the balance are large-caps. If the underlying S&P 500 universe didn’t exclude small-caps, EWRE would no doubt tilt much smaller.

EWRE clocked a year-to-date appreciation bettering 22% with a 6.03 Sharpe ratio, making it the best-of-breed real estate ETF. Given its lowly 0.07% market share, however, much of EWRE’s light is still hiding under a bushel.

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Disclosure: Brad Zigler pens Wealthmanagement.com's Alternative Insights newsletter. Formerly, he headed up marketing and research for the Pacific Exchange's (now NYSE Arca) option ...

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William K. 4 weeks ago Member's comment

Certainly Real Estate as an investment makes sense, because property is a bit like gold, and possibly even a better investment, because the quantity of property is "finite." Land is no longer being made, although more is available, the prime locations are not. And while the price may vary, the intrinsic value seldom changes rapidly, in most cases.

So Thanks for pointing out in a interesting article what may not have been at the forefront of our attention's focus.