It is little recognized that real estate stocks tend to register the bulk of their gains during the months of March through July plus the month of December (although March of 2020 was obviously a very “unpretty” exception). Figure 1 displays the cumulative total return for Fidelity Select Real Estate (ticker FRESX) only during these favored months since inception in 1986.
Figure 1 – FRESX total return March-July (1986-2020)
(See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine)
The August-November period has been much less consistent. Figure 2 displays the return for FRESX only during these months since inception.
Figure 2 – FRESX total return August-November (1986-2020)
So hopefully the rest of June plus the month of July will be favorable for REITs (Real Estate Investment Trusts) in general and will recoup more of the March 2020 loss.
Drilling a Little Deeper
Just for fun, lets “get into the (seasonal) weeds” for real estate. Again, using FRESX as a proxy (although we will have to use another vehicle for trading purposes – more in a moment), the period below has seen some fairly consistent gains. That period consists of:
*26 trading days
*Following June Trading Day of the Month #17
(did I mention we were getting into the weeds?)
The next period starts at the close on 6/23/2020 (which is the 17th trading day of June) and extends for 26 trading days through the end of trading on 7/30/2020.
Will this period show a gain? Maybe, maybe not. But consider the history. Figure 3 displays the cumulative growth achieved by holding FRESX for these same 26 days each year (IMPORTANT NOTE: If you actually did this with FRESX Fidelity would likely charge a switching fee for NOT holding it for 29 days – so we will discuss an alternative momentarily).
Figure 3 – FRESX cumulative % +(-) during 26 favorable June/July trading days
Figure 4 shows results on a year-by-year basis.
Figure 4 – FRESX yearly % +(-) during 26 favorable June/July trading days
For the record:
*# of times UP = 27 (82% of the time)
*# of times DOWN = 6 (18% of the time)
*Average UP % = +4.0%
*Average DOWN % = (-3.3%)
*Largest UP% = +16.4% (in 2009)
*Largest DOWN % = -6.3% (in 2007)
An Alternative
As I have mentioned, Fidelity charges a (not insignificant) “switching fee” for sector fund trades held less than 29 days – ostensibly to discourage frequent switching. An alternative is the ETF ticker IYR (iShares U.S. Real Estate ETF), which can be bought and sold like shares of stock. IYR has a shorter track record as it started trading in 2000.
ETF ticker IYR history during 26-day favorable June/July Period:
*# of times UP = 17 (85% of the time)
*# of times DOWN = 3 (15% of the time)
*Average UP % = +4.3%
*Average DOWN % = (-4.2%)
*Largest UP% = +16.1% (in 2009)
*Largest DOWN % = -6.3% (in 2007)
As you can see, results using IYR are close enough to those of FRESX (at least in my market-addled mind) that IYR constitutes a viable trading alternative.
Summary
Does any of this mean that I am “recommending” that anyone buy IYR on the close of 6/23/2020, or even that IYR is likely to show a gain in the subsequent 26 trading days? Sorry folks, I don’t offer investment advice on this blog. Everything I write about here is strictly “informational” based on my own (granted, somewhat unorthodox) way of looking at things.
See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine
See also Jay’s “A Strategy You Probably Haven’t Considered” Video
See also Video – The Long-Term…Now More Important Than Ever
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented represents the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
