Real Estate Dips as Narrow Breadth Limits the Sector

Only 28.6% of the Real Estate sector's graded weight sits in companies carrying an A or B quality grade, and market breadth remained narrow on Tuesday, October 13, with just 33.3% of its member companies finishing higher. In the Real Estate Select Sector SPDR Fund, an exchange-traded fund that tracks the sector under the ticker XLRE, closing performance settled at -0.2%. While CoStar Group Inc closed at +2.7%, laggards capped the group, led by Crown Castle at -1.8%. Across the broader group, the cap-weighted sector return finished at -0.3%, while the equal-weighted sector return stood at -0.1%. While market reporting showed the fund little changed on the day, our sources show no reported driver behind the session's move.

Across the broader market, 4 of the 11 sectors rose on the session, placing real estate among the groups that lagged the wider tape. In wider trading, falling oil prices pushed the 10-year Treasury yield down to 5.21% from 5.24% late last week, as major equity benchmarks edged back from record levels.

In healthcare real estate, CareTrust REIT drew an analyst rating reiteration following its acquisition of 45 care homes in the United Kingdom for $1.4 billion. In commercial facilities, property purchases also proceeded, including a 154,000-square-foot warehouse acquisition in Missouri City for $26.8 million.

For investors holding the fund, which closed at $41.83, the session extends a challenging run. Over the past month, the fund is -3.0%, and its move over the past six months stands at -3.6%. The gap between cap-weighted and equal-weighted performance shows that larger holdings continue to create an extra drag on the group. With $7.7 billion in net assets, the fund weights holdings by market capitalization, concentrating capital in the sector's largest operators where that drag has been concentrated.