Mortgage REITs and Homebuilders Win 2008 Primary
05 February 2008 at 12:11 pm by Gary Gordon
I’ve written a fair amount about volatility in previous posts. For instance, a spike in the CBOE Volatility Index (VIX) often represents the last bit of fear shaken out of market participants. Unfortunately, that’s not what we’re getting in today’s market rout.
The VIX is trending higher… back above 28 and climbing. But we don’t have that sharp spike that usually represents a buying opportunity for new money.
Remarkably enough, though, investors seem enamored by two of 2007’s biggest disasters: homebuilders and mortgage REITs. On a day when the Dow, S&P 500 and Nasdaq have fallen more than 2%, these 2007 losers have actually found buying interest.
Consider the iShares FTSE Mortgage REIT Fund (REM). Could you sleep easy owning residential mortgages with the words "recession" and "subprime" hanging over your head?
Apparently, right now you can! REM is up on a day when only treasury bonds have done well.
The iShares FTSE Mortgage REIT Fund (REM) isn’t rallying in a single-day act of defiance. It has gained more than 10% in 2008.
Similarly, how might one explain the SPDR S&P Homebuilders Fund (XHB)? Granted, it has given back some ground today, but only half of what the market vis-a-vis the S&P 500 has lost.
And there’s more. The SPDR S&P Homebuilders Fund (XHB) is currently looking at a 1-month gain of nearly 30%. It’s also one of the few equity investments above a 50-day moving average. (Note: It still hasn’t eclipsed a long-term, 200-day moving average.)
It would be premature to predict victory for either the iShares FTSE Mortgage REIT Fund (REM) or the SPDR S&P Homebuilders Fund (XHB). That said, they’ve certainly won over a few voters in primary season.
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