In times of uncertainty with rates under pressure as investors shifted to safe-haven plays, attractive yield-generating sector ETFs covering the real estate and utilities segments outperformed, and touched all-time highs earlier this week.
Both the S&P 500 Real Estate Sector and S&P 500 Utilities Sector hit all-time record highs earlier this week, CNBC reported.
Year-to-date, the Utilities Select Sector SPDR (NYSEArca: XLU) increased 21.0%, Vanguard Utilities ETF (NYSEARCA: VPU) advanced 20.6%, Fidelity MSCI Utilities Index ETF (NYSEARCA: FUTY) rose 20.6%, iShares U.S. Utilities ETF (NYSEArca: IDU) gained 20.1% and Reaves Utilities ETF (NYSEArca: UTES) was 22.5% higher.
Steady Demand For Stable Stocks
Utilities are typically more stable stocks since the demand for their services, notably electricity and gas, is steady from both consumers and businesses. Moreover, in a lower-for-longer yield environment, utilities come with more attractive above-average dividends.
Additionally, the iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) jumped 26.6%, Vanguard REIT ETF (NYSEArca: VNQ), Schwab US REIT ETF (NYSEArca: SCHH) was up 22.5%, and the Real Estate Select Sector SPDR Fund (NYSEArca: XLRE) surged 30.0%.
The real estate sector even briefly outpaced the technology sector as the best performing sector earlier in the week.
Real estate investors enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.
The persistent uncertainty over the U.S.-China trade war and slowing global growth trends weighed on the risk-on sentiment and pushed rates down as investors piled into the bond market in search of safety. The yield on benchmark 10-year Treasury notes fell to their lowest level in three years, with many worried investors highlighting a yield curve inversion.
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