There is a season, turn, turn, turn. OK, as a “rock n’ roll guy” I always found that song to be a little wimpy. But as a stock market analyst I find it to be a pretty useful phrase.
(See also The Best Bear Market Strategy)
The Real Estate Sector
There are many factors that affect real estate stocks. The economy, interest rates, the availability of credit, and so on. But the most valuable tool when it comes to trading real estate stocks might just be the calendar. So let’s take a look.
The 3 “favorable” times of year for real estate are:
*From the close of March Trading Day #1 through the close of May Trading Day #8
*From the close of June Trading Day #17 through the close of July Trading Day #21
*From the close of November Trading Day #14 through the close of December Trading Day #22
For our first test, Figure 1 displays the growth of $1,000 invested in Fidelity Select Real Estate fund (ticker FRESX) only during these 3 periods since 9/30/1988, versus buying and holding FRESX during the same period. We assume an annualized rate of interest of 1% is earned while not in FRESX.
Figure 1 – Growth of $1,000 invested in FRESX during seasonally favorable periods (blue) versus buy-and-hold (red); 9/30/1988-10/7/2016
For the record, from 9/30/1988 to 10/7/2016:
*The 3 seasonally favorable periods gained+5,360% with a maximum drawdown of (-20.4%).
*Buy-and-Hold gained+1,730% with a maximum drawdown of (-76.3%).
One alternative for more aggressive traders is ProFunds Real Estate UltraSector (ticker REPIX) which uses leverage of 1.5-to-1 and has no switching restrictions. This fund started trading on 8/8/2000. Figure 2 displays the growth of $1,000 invested in REPIX only during our 3 favorable periods since 8/8/2000, versus buying and holding REPIX during the same period.
Figure 2 – Growth of $1,000 invested in REPIX during seasonally favorable periods (blue) versus buy-and-hold (red); 8/8/2000-10/7/2016
For the record:
*The 3 seasonally favorable periods gained+2,747% with a maximum drawdown of (-31.7%).
*Buy-and-Hold gained+172% with a maximum drawdown of (-91.2%).
Figure 3 displays the year-by-year results for REPIX using the seasonally favorable periods versus buy-and-hold.
Figure 3 – Seasonal REPIX versus Buy-and-Hold
*2000 – from 8/8/2000 through 12/31/2000
**2016 – from 12/31/2105 through 10/7/2016
***Average – includes only full calendar years
Summary
The real estate sector is a lot like the energy sector in that when it’s good it’s great and when it’s bad it is very, very bad. Investing in sectors like these on a “part-time basis” might not be the worst idea in the world.
Jay Kaeppel
One would probably have to go with REPIX rather than FRESX, if wanting to implement this. I believe Fidelity imposes a 1% redemption fee for any position in the fund sold within 90 days of purchase.