Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decision-making process. Backtested performance is developed with the benefit of hindsight and has inherent limitations. This information is provided for illustrative purposes only. No representations and warranties are made as to the reasonableness of the assumptions. Certain assumptions have been made for modeling purposes and are unlikely to be realized. Changes in these assumptions may have a material impact on the backtested returns presented. General assumptions include: XYZ firm would have been able to purchase the securities recommended by the model and the markets were sufficiently liquid to permit all trading. Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. The results reflect performance of a strategy not historically offered to investors and does not represent returns that any investor actually attained. Backtested performance is not an indicator of future actual results. He can be reached at HulbertĬopyright (c) 2023 Dow Jones & Company, Inc.Disclaimer: The TipRanks Smart Score performance is based on backtested results. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. Mark Hulbert is a regular contributor to MarketWatch. Your challenge will be to perform as well, or better, with your particular real estate investment than the asset class's overall average. The bottom line: There is no easy way for investors to gain exposure to residential real estate as an asset class. So it makes sense that investors would stop bidding up REZ's price well in advance of when the Case-Shiller index slows its pace of growth or declines. But one big one is that the stock market is forward looking, discounting what appears to be coming down the road several quarters or years hence. There no doubt are many different factors that account for the absence of a strong correlation between REZ and the Case-Shiller index. Notice the striking correlation between REZ and the S&P 500-and the absence of much of a correlation between it and the Case-Shiller index. Its cumulative performance since then is plotted in the accompanying chart, along with the S&P 500's total return and the Case-Shiller index. The ETF that perhaps comes closest to representing the residential real estate asset class is the iShares Residential and Multi-Sector Real Estate ETF (REZ), which was created in May 2007. Unfortunately, they appear to be more correlated with the stock market than with the Case-Shiller index-and thus not very helpful as hedges against equity bear markets. Almost all of the real-estate funds and ETFs that do exist are dominated by commercial real estate and municipal infrastructure rather than residential real estate. Futures contracts do exist that are based on the index, but they are illiquid and trade infrequently. A number of years ago an ETF benchmarked to it was created, but it no longer exists. If only we could invest directly in an index fund benchmarked to the Case-Shiller index. bonds have fallen by double-digit amounts. In this bear market, in contrast, both the S&P 500 and long-term U.S. The latest reading of the Case-Shiller index is 5.4% higher than where it stood when the current bear market began in January 2022, for example. Since the GFC, however, residential real estate has largely returned to its pre-GFC pattern. The Global Financial Crisis (GFC) stands as an exception to this pattern, and it was a doozy: From its pre-GFC peak to its post-GFC low, the Case-Shiller index fell by 28%. And in that lone one in which the index fell, it did so by just 0.4%. equity bear markets from the mid-1950s through the bursting of the internet bubble in the early 2000s, this index rose in all but one. stock bear markets, consider the Case-Shiller U.S. To appreciate how good a job-theoretically-that residential real estate does as a hedge against U.S.
That's because it's impossible for an individual investor to gain exposure to the asset class as a whole, and as the English proverb goes, "there's many a slip twixt the cup and the lip" when attempting to approximate that exposure. In practice, however, it leaves much to be desired. Residential real estate is the ideal investment to protect your portfolio from a stock bear market-on paper.
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