Here is an interesting explanation of todays wild REIT swings from the Motley Fool Real Estate Board
boards.fool.com
The key comments are as follows:
<<My guess is that a couple of things contributed to this rout. First, there was likely some index rebalancing, with some stocks dropping out of one index or another. I know that this was a particularly busy quarter for REITs coming in and out of various indices -- however, I don't think that that effect can anywhere near fully account for most of what happened today.
In my opinion, what primarily caused today's drop was most likely one or more institutional investors, probably pension funds, making the strategic decision(s) to change their allocation(s) to REITs as of the end of the quarter. This is the side of the business I come from, and I know these guys often do things this way. The plan sponsor investment staff makes a recommendation earlier in the quarter that the fund change its allocation from, say 5% to 2.5%. They go through a whole process of board approval, and make the decision to get out at the end of the quarter. A trade like this can be very large for a low-liquidity sector such as REITs. If a $5 billion pension fund sells a 2.5% position, that's $125 million -- a big chunk for the REIT market to absorb.
Furthermore, what such an institution will often do is give the trade to one or more brokers, and tell them to get the trades done at an average price that beats the quarter end closing price. Guess what happens? The brokers sell a bunch of the portfolio throughout the day, trying to get a chunk of it done without slamming the market too much. But they save a nice piece for end of day, and then throw it on the market with market-on-close orders. What this does is trash the price on the close, making their earlier trades look relatively brilliant. Their average price ends up being much higher than the close.>> |
