Investor 'Hate' Could Quadruple This Asset's Returns

Today, the "smart money" hates one asset class more than any other... And in this case, it could mean a great buying opportunity for contrarians.

We can see it through the Bank of America ("BofA") Global Fund Manager Survey. The survey reaches about 300 fund managers every month. These are the top dogs of global finance... with nearly $1 trillion in combined assets under management.

These fund managers answer BofA's questions about their portfolio positions and expectations for the future. And in the August survey, one asset class reached a decade-plus low in popularity.

I'm talking about real estate investment trusts ("REITs")...

This type of investment vehicle combines a diversified pool of real estate holdings into a single trust. Then, folks can buy shares of the trust through their brokerages. REIT buyers get the advantages of owning real estate without the fuss of holding physical property.

Fund managers are historically bearish on REITs today. But their fear might be a buying opportunity in disguise. Let me explain...

Today, fund managers really hate real estate stocks.

The latest Global Fund Manager Survey showed that fund managers are bailing on REITs at a level not seen since 2009. Take a look...

Today, fund managers are roughly as bearish on REITs as they were near the bottom of the great financial crisis. They don't want anything to do with this asset class.

But the bear position is likely overdone. We can see this by looking at the relative strength index ("RSI") for a simple REIT fund...

The RSI reading tells us when an asset has gone too far, too fast in either direction. An "overbought" signal flashes when prices soar and push the RSI past 70. And an "oversold" signal lights up when prices drop and push the RSI below 30. In either case, prices tend to reverse after the extreme.

We recently saw an oversold signal for the iShares Global REIT Fund (REET). This exchange-traded fund tracks a broad basket of real estate trusts from all over the world.

As fund managers abandoned REITs this month, REET plunged 7% from its peak in late July. And its RSI hit oversold levels on August 17. Take a look...

Investors are bailing on REIT stocks today. That's unusual for this asset class... In the nine years since REET was started, it has only been oversold about 3% of the time.

And historically, that's exactly when you want to buy REITs...

To bear this out, I looked at REET's forward returns after oversold extremes in the past. Historically, signals like these have led to major outperformance. Take a look...

Using a typical buy-and-hold strategy, REET tends to stay pretty flat over time... returning an average of 1% in three months, 1% in six months, and 3% per year.

But buying on oversold extremes quadrupled that annual return...

REET soared 6% on average in three months after this signal flashed. It digested those gains in the six-month period, dropping to 5%... before jumping 12% in a year.

Even better, this signal has a great risk profile. The worst one-year drawdown after the signal was 12%... while the biggest return was 65%. And REET ended up positive one year later 63% of the time. So the odds favor the folks who buy today.

Everyone – from money managers to everyday investors – is bailing on REITs at exactly the wrong moment. History says you want to take the opposite bet today... and position yourself to profit once this overplayed trend reverses.

Good investing,

Sean Michael Cummings

Further Reading

Everyone expected home prices to drop as interest rates soared... Yet prices have barely budged this year. Part of the reason is a quirk in the relationship between new and existing homes today... Get the full story here.

Investment professionals were bearish on the stock market at the end of last year. Now, they're starting to turn bullish again – but according to history, this likely isn't the contrarian signal you might expect... Read more here.