Look to Defensive Sectors Like Real Estate for Volatility Protection

While a global spread of the coronavirus could erase U.S. corporate growth completely in 2020 according to Goldman Sachs, there are certain sectors that could help mute volatility blaring in the markets these days.

Per a CNBC report, Goldman Sachs “cut its S&P 500 earnings estimate by $9, while saying it expects no earnings growth. In 2021, the firm sees $8 less in S&P 500 earnings and a growth rate of just 6%. Goldman now sees baseline earnings-per-share estimates of $164 in 2020 and $175 in 2021, representing 0% and 6% growth, respectively.”

“Our reduced profit forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, disruption to the supply chain for many U.S. firms, a slowdown in U.S. economic activity, and elevated business uncertainty,” said Goldman Sachs analyst David Kostin.

Kostin advises investors take a closer look at more defensive equities like real estate.

“Real estate companies generate 81% of their revenue domestically and have significant recurring revenues. Utilities have similar revenue characteristics but the historical relative valuation is more attractive for real estate,” Kostin wrote. “Industrials and financials are both pro-cyclical so a slowing economy represents a challenge for both sectors. However, financials has the added headwind of falling interest rates.”

Real Estate ETF Exposure

Investors who want broad exposure to the real estate market via ETFs can start with the Vanguard Real Estate ETF (NYSEArca: VNQ). VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. VNQ is up 7.26 percent year-to-date, according to Yahoo Finance Performance numbers.

Traders will want to keep on an eye on when playing leveraged real estate exchanged-traded funds like the Direxion Daily MSCI Real Est Bull 3X ETF (NYSEArca: DRN) and Direxion Daily MSCI Real Est Bear 3X ETF (NYSEArca: DRV).

Overall, Direxion ETFs will help traders:

  • Magnify your short-term perspective with daily 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
  • Stay agile – with liquidity to trade through rapidly changing markets

The MSCI US IMI Real Estate 25/50 Index (M2CXVGD) is designed to measure the performance of the large-, mid- and smallcapitalization segments of the U.S. equity universe that are classified in the real estate sector as per the Global Industry Classification Standard (GICS).

For more market trends, visit the ETF Trends.