The ETF Portfolio Strategist: Saturday, May 1

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  • REITs, commodities and US junk bonds buck the trend with gains this week

  • Losses across the board for our four portfolio strategy benchmarks

Winning behavior

The winners keep winning and the losers, well, it’s a bit complicated for this week’s losers. But for the top-performers this week for our broad set of ETF proxies for global asset classes the winning streaks roll forward.

Vanguard US Real Estate (VNQ) jumped 1.3% for the trading week through Friday’s close (Apr. 30). For those of you counting, that’s six straight weekly gains as the fund, which holds American real estate investment trusts (REITs), continues to forge new record highs.

What’s lighting a fire under US REITs? Several possibilities are in the air, including the latest addition to the list: REITs are expected to remain immune to the proposed corporate taxes rolled out by the Biden administration. Since REITs are so-called pass-through entities from a tax perspective, corporate taxes won’t apply. As such, REITs and their relatively high payout ratios are all the more attractive. The market certainly seems to agree.

Commodities were the second-best performer this week. WisdomTree Continuous Commodity Index (GCC) rose 0.9%, marking the fifth consecutive weekly advance.

The animating drivers: economic recovery and expectations that inflation is heating up. Today’s first look at the Q1 GDP data revealed a red-hot economy that increased 6.4%. Ignoring 2020’s extraordinary one-time bounce in Q3 following the initial pandemic shock, the Q1 rise is the best quarter for growth in 18 years for the US economy.

Combine that with a growing chorus of forecasts that inflation is headed higher, at least for the short term, and commodities are enjoying something of a macro nirvana party. It’s debatable if inflation’s rise is temporary or the start of a longer run of hotter pricing pressure. But for commodities bulls, it’s all about buy now and ask questions later.

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Disclosures: None.

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