Money Managers Dump REITs to Lehman Levels: Omen or Opportunity?

Fund managers are piling out of REITs, with positioning showing a "capitulation" to Lehman/GFC levels, BofA strategist Michael Hartnett wrote.

"REITs (are) most fascinating to watch," Hartnett added. If there is "no recession, FMS says go max long, but if REITs can't recover with Lehmanlike positioning, then recession could be just around the corner."

Fund managers are not alone, retail investors are also shunning REITs, with the implied allocations to REITs ETFs by US investors tracking at the lowest level on record.

Investors are pivoting away from REITs ETFs as they don't see it as a good opportunity, according to Callum Thomas, head of research at Topdown Charts.

"REITs as a group are not really cheap yet in terms of absolute valuations, and still face real challenges and macro headwinds — but at this point everyone seems to already understand this and have adjusted accordingly," said Thomas.

If REITs simply avoid 2008-style apocalypse (when REITs fell 75% top-to-bottom which compares to declines of just over 30% last year for US REITs), it could be an interesting contrarian bull setup, Thomas added.