iShares Cohen & Steers Realty Maj. (ETF) (ICF)

If there is one sector that is running amuck defying analyst’s forecast of a slow down, that is real estate. The sector is so strong that it is being credited with pulling out the U.S. out of recession that happened in 2001.The sector ranks as one of the leaders when it come to creation of jobs and contribution to GDP.


iShares Cohen and Steers Realty Majors index fund (ICF) is one such realty sector fund which returned a spectacular 39 percent last year. The fund has firms that invest in offices, retail spaces, industrial units and apartments. The holdings in the fund are highly concentrated with 60 percent of assets invested in the top ten holdings making it more volatile than its peers. This factor along with a high expense ratio makes the fund less competitive.


The sheen in the retail sector has brightened because of the few multi-billion dollar deals that happened last year, which included the $39 billion take over of Equity Office Properties by Blackstone group. This should have brought cheers to the segment and brighten up the forecast although the reverse seems to be happening. The retail sector in the U.S. is currently facing a slow down with inventories building up, vacancies going up and supply surpassing demand. To add to this most of the firms in the ETF are overvalued and expectations of continued growth do not draw support.


Thus the general economic scenario, the status of the fund vis-a-vis its peers and the volatility of its constituents all makes it an unlikely candidate for a rally in 2007. These factors increase the probability of the impending correction that has been lurking around the corner for quite some time.