NEW YORK (AP) — In 2019, investors relied on bricks and mortar to balance the riskier parts of their portfolios and earn a good return.
The S&P 500 real estate sector outperformed the broader market throughout the year. It is the second best performing sector in the index, between technology and communications companies. That risky and safe-haven sectors can simultaneously drive the market may seem contradictory, but investors needed hedging as the decade-long bull market looks threatened by a global economic slowdown.
“It’s like a dumbbell approach,” said Sam Stovall, chief investment strategist at CFRA. “You have yield-hungry investors and they’re going into some of the higher-yielding areas like commodities and utilities, but it’s getting expensive.”
Stovall said real estate stocks are holding up well because investors believe they are not overvalued.
Real estate investment trusts, including HCP and Duke Realty, are sought primarily for dividends. Shares are legally required to pay out 90% of their income to shareholders. Many of them have dividend yields of over 4% and are also insulated from potential market fluctuations created by the ongoing trade dispute between the United States and China.
Investors hedged their bets throughout the year in other ways. Bond prices rose, pushing the 10-year Treasury yield to around 1.7% from around 2.7% at the start of the year. Government bonds are also seen as a safe place to transfer money when economic growth looks uncertain.
The sharp drop in bond yields, which has been happening globally, is also likely behind the rise in real estate stocks with their reliable dividends.
“The sharp drop in yields globally has created an appetite for more defensive high yield holdings,” said Ryan Detrick, senior market strategist for LPL Financial.
The trade war between the United States and China loomed over bond and equity markets for most of the year. The two nations now appear to be holding a truce as they negotiate a deal. This helped refocus investors on corporate earnings and the latest financial forecasts.
Heightened optimism about corporate earnings growth in 2020 could put more emphasis on high-growth holdings like technology and communications stocks. Investors are closely watching corporate statements on capital spending, which plummet amid trade anxiety.
Stovall said investors have historically shifted to more aggressive holdings starting in November. This could lead to slower performance for more defensive stocks, including real estate companies.
“Everything has a season, and so does the stock market,” he said.