NEW YORK (AP) — In 2019, investors have relied on bricks and mortar to balance the riskier parts of their portfolios and get a good return.
The S&P 500's real estate sector has been outpacing the broader market throughout the year. It's the second best performing sector in the index, in between technology and communications companies. That risky and safe-haven sectors could simultaneously lead the market might seem contradictory, but investors have needed a hedge as the decade-long bull market appears threatened by a global economic slowdown.
"It's like a barbell approach," said Sam Stovall, chief investment strategist at CFRA. "You have investors starving for yield and they're looking at some of the higher yield areas like staples and utilities, but it's getting expensive."
Stovall said real estate stocks are holding up well because investors feel they are not overvalued.
Real estate investment trusts, including HCP and Duke Realty are sought after mainly for dividends. The stocks are legally required to pay 90% of their income to shareholders. Many of them have dividend yields of more than 4% and are also insulated from potential swings in the market created by the ongoing trade dispute between the U.S. and China.
Investors have been hedging their bets throughout the year in other ways. Bond prices have been rising, which has pushed the yield on the 10-year Treasury down to around 1.7% from around 2.7% at the start of the year. The government bonds are also viewed as a safe place to shift money when economic growth seems uncertain.
The sharp drop in bond yields, which has happened on a global scale, is also likely behind the rise of real estate stocks with their reliable dividends.
"The big move down in yields globally created an appetite for more defensive high-yield holdings," said Ryan Detrick, senior market strategist for LPL Financial.
The U.S.-China trade war has been looming over the bond and stock markets through most of the year. The two nations now appear to be holding to a truce as they negotiate a deal. That has helped shift investors' focus back to corporate earnings and the latest financial forecasts.
Increased optimism for corporate earnings growth in 2020 could put more emphasis on high-growth holdings like technology and communications stocks. Investors are closely watching company statements about capital spending, which has been slumping amid anxiety over trade.
Stovall said that the investors have historically shifted into more aggressive holdings starting in November. That could result in a stunted performance for more defensive stocks, including real estate companies.
"To everything there is a season, and the same goes for the stock market," he said.