Displaying items by tag: volatility
There are a lot of safe havens that people are trying to use to defend against market turbulence right now. The two that immediately come to mind are Treasury bonds and gold. However, those are clearly overbought, so where is another good place? Some REITs are offering very attractive defensive profiles. REITs generally do well during periods of falling rates as their yields become ever more attractive. They were beat up during the rate rises of 2018, but have surged this year, up 20%. What is very compelling, though, is that despite the big rise, REIT valuations are just now returning to their average historical valuations. Speaking about the nature of REIT cash flows, especially regarding long-term leases, “The cash flow is locked in, and that’s just not the case for most of the stock market”, says and Eaton Vance Real Estate fund manager.
FINSUM: Certain REITs seem like they could be a very good buy right now given that they are not overpriced and have falling rates as a tailwind.
There are a lot of retirees, or near retirees, who have not had to navigate real market volatility for around a decade. And as any retiree knows, high volatility in or at retirement is a very scary prospect. However, there are ways to navigate it. Some tips including keeping a cash buffer, going bargain hunting in the market to find undervalued stocks, and re-evaluating stock exposure. Rotating into sectors that do well in downturns, like consumer staples, healthcare etc, can also be smart.
FINSUM: This is good advice. That said, the US may not be headed into a really bad economic and market scenario, so it may not be wise to get too defensive.
With markets at elevated levels, investors may be looking for a safety stock. How about one outside the usual suspects? Here is a suggestion—Goldman Sachs. Yes, we know, that sounds odd considering that investment banks tend to have wildly unpredictable earnings because of fluctuations in trading revenue. However, the bank has just made a big dividend boost from 85 cents to $1.25 per share, which is likely to significantly elevate its status with dividend-seeking investors. Goldman is also diversifying away from its highest risk businesses and smoothing out its revenue by focusing on a more steady Main Street-oriented suite of products.
FINSUM: We think the jury is still out on Goldman’s success at retail banking products. That said, the prevailing narrative about its transformation and the dividend boost will help it be less volatile.
The market’s outlook grew significantly dimmer yesterday. The Fed made clear that investors should not expect a rate cut in a July, which took the wind out of equity investors’ sails. With that in mind, here is a list of ten stocks that should help investors win in a downturn. The theme here is “low volatility” stocks, or stocks with less risk that should outperform the market in a choppy environment. The list: Aflac, Amdocs, American States Water, Atmos Energy, DTE Energy, Duke Energy, McDonalds, NextEra Energy, OGE Energy, WEC Energy Group.
FINSUM: Given the Fed’s reversal from what the market thought was its stance yesterday, right now does seem like a good time for low volatility stocks.
Low volatility stocks aren’t behaving the way they are suppose to right now, but that is what makes them interesting. Stocks chosen because of their generally low volatility tend to perform poorly in up markets as their low beta means they underperform benchmarks. But the nature of this year’s rally has defied that idea. Stocks are up 18% this year, but there are still many worries about the economy, the combination of which has given a big boost to otherwise boring stocks. Even during the losses of May to June, low vol stocks barely lost anything even though the market plunged.
FINSUM: There are a number of low vol funds like USMV and SPLV which are good choices for this area. These stocks seem like they have found a sweet spot in the current market environment.