SIA Weekly: A Look at Canadian REITs (ZRE.TO) and U.S. Real Estate (IYT)


For this week's Equity Leaders Weekly, we will take a look at the real estate sector, looking at ETFs that track the Canadian real estate and US real estate markets. As the real estate sector is ranked in the Favored zone of both ETF sector rankings and mutual fund sector rankings on SIACharts, it is an area of consideration that you might want to look at closer. Real estate also has some unique advantages like income return, diversification, and sometimes low correlation as it is often considered its own asset class as well with its unique properties.

BMO Equal Weight REITS Index ETF (ZRE.TO)

The BMO Equal Weight REITs Index ETF (ZRE.TO) has been designed to replicate, to the extent possible, the performance of the Dow Jones Canada Select Equal Weight REIT Index, net of expenses. The Fund invests in Canadian real estate investment trusts. As you can see in the point and figure of ZRE.TO, this ETF is looking to challenge its prior highs at around $19.86, which is the first resistance level. Above this, $21.08 could come into play as the next resistance level. ZRE.TO is down -2.73% over the last year, but is up over 18% over the last quarter, all while being in the Favored zone of the SIA Canadian ETF Sectors and the SIA Canadian Mutual Fund sector rankings.

To the downside, support is found at $181.6 and at $17.28 if this current trend does reverse. The SMAX score for ZRE.TO which is the near-term strength indicator against other asset classes, is only showing a 6 out of 10 however. Please note that for this point and figure chart analysis of ZRE.TO, a 1% box size was used to look at a shorter time frame to see more of the movement of the Canadian real estate market over the last few years. If using a 2% chart (like we will for IYT below), this will give us a longer term analysis for the support and resistance levels for ZRE.TO where the $20.00 level is the first resistance level and prior high while $17.76 is the first support level (not pictured). No matter what chart or box size used, the story for this sector outlook remains the same based on the simplified relative strength rankings in SIACharts to help us understand the risk/reward ratio of this sector versus other opportunities.

Click on Image to Enlarge

iShares U.S. Real Estate ETF (IYT)

Looking now at the US real estate market, the iShares U.S. Real Estate ETF (IYR) tracks the Dow Jones U.S. Real Estate Index composed of the real estate sector of the United States equity market, and includes companies in the industry groups, such as real estate holding and development and real estate investment trusts (REITs). The point and figure chart used for IYR uses a 2% box size for the chart where every X or O represents a 2% positive or negative move over time. Not pictured in this chart is the drawdowns this ETF experienced in 2007 (~19%) and in 2008 (~38%), but this ETF has been positive over the last quarter, year, 3-yrs, and 5-yrs as you can see in the chart with its general upwards trend. It has now moved up against its prior highs from about a year ago at the resistance level at $79.07. A breakthrough this level could see the next resistance level at $85.59 come into play.
To the downside, support is found at $71.62 should it pull-back like it did in March of 2015. The next support level is found around $66. With an SMAX score of 10 out of 10, IYR is showing near-term strength against all other asset classes. As the real estate sector is also ranked high in both the SIA US ETF Sectors and the SIA US Mutual Fund sector rankings, we would suggest to keep a close eye on if it can break through its prior highs for further confirmation of continued strength.

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