It’s time to panic!
That’s what the markets were told in late February, and they ended the month with that same sense of dread.
COVID-19, more commonly known as the coronavirus, was out and about, you see. Therefore, there was only one conclusion…
It was time to panic!
Believe it or not, I’m not trying to mock anyone. I’m only trying to point out how emotion-driven the markets can be.
There was so very little logic involved in the Dow’s first 442-point “dip” on Feb. 24, its 956-point drop on Feb. 25, its 200-plus point stumble on Feb. 26, or its 759 point fall from grace on Feb. 27.
As The Atlantic put it over the weekend:
“… stock markets around the world plunged as distressing news about the spread of the novel coronavirus continued to accumulate. In the United States, the three major stock indexes… fell more than (10%) below their recent peaks, a sharp decline that qualifies in Wall Street terminology as a market “correction.” “One investor quoted in The Wall Street Journal called it a ‘bloodbath.’”
Because, again, it was time to panic.
Who’s Afraid of the Coronavirus?
Let me give you a helpful tip about life: Coronavirus or not, there’s always something to panic over.
Sometimes it’s personal. Sometimes it’s familial. Sometimes it’s national. Sometimes it’s global.
But there’s always something out there waiting to go “boo!” I won’t provide you with the full list of bogeymen monsters lurking around potential corners up ahead. After all, the point of this piece is to assure you (and point you in the right direction) not to freak you out any more than you already are.
While, yes, there are always precautions we should take and future-focused thinking caps we should wear, there’s no point in obsessing over everything that could potentially happen in the future. It would be completely counterproductive.
In this case, we’re much better off considering the past, particularly some health scares the world has faced this century. Faced and survived with the vast majority of its population intact.
For example, do you remember the Ebola virus? Remember how panicked everyone was about that epidemic?
WorldAtlas.com writes that:
“The world’s most widespread Ebola virus disease outbreak happened in West Africa in 2013 and lasted until 2016. Liberia, Sierra Leone, and Guinea were the worst affected countries. Major loss of life and socioeconomic losses were suffered during this epidemic… After a peak in October 2014, things started getting under control as international efforts started bearing fruit. Finally, on March 29, 2016, WHO (the World Health Organization) terminated the status of the epidemic as an emergency of international concern.”
There were 28,646 cases reported, with 11,323 deaths during that time frame – a pretty abysmal survival rate for an already rotten issue.
Yet the markets survived anyway, going on to hit new record after new record in the years after.
The Coronavirus Is Out to Get Your Portfolio! Or Is It?
Compare that to COVID-19, or the coronavirus. As of March 2, the World Health Organization was saying there were 88,948 confirmed cases.
Of those, 80,174 were in China, where 2,915 deaths were recorded. That’s a 3.6% death rate, which is stellar compared to Ebola, but far less impressive compared to your ordinary, average health concern.
Outside of COVID-19’s country of origin, 8,774 individuals have been diagnosed, with 128 deaths. That’s a 1.46% death rate for those who have contracted it.
And, incidentally, on a global level, 99.9886% of the world’s population has not been affected so far. I’d say that’s a pretty decent indication that the world will keep spinning tomorrow and companies won’t completely crumble today.
Yet, still, it’s time to panic, as evidenced by how the markets behaved on Tuesday, March 3.
So let’s break the situation down to its very basics…
Simply put, you can only do so much to avoid getting the coronavirus. And you can’t really do anything at all about whether the markets will be fear- or greed-fueled.
But that doesn’t mean you should take your money and run. Even if you’re a retiree.
Perhaps even especially if you’re a retiree.
If you have a portfolio of solid companies with reliable dividends, it largely doesn’t matter what the markets may do.
Your share prices will still increase over time apart from the occasional blip. (You know: the logic-less dips, drops, trips, and falls from grace.) But, up or down, those stocks will continue to pay you every quarter or every month – steadily, reliably making you money.
That way, no matter what everyone else is doing, you don’t have to panic.
I call it the sleep well at night (or SWAN) phenomena. And it’s well worth the investment through stocks like those we cover below.
Real Estate Investment Trusts to Snuggle Up To
For starters, let’s explore the real estate property sectors that are most risk exposed right now:
Lodging (-15.8% week over week)
Senior housing (-13% w/w)
Malls (-11.4% w/w).
Fortunately, we’re already “underweight” in lodging and malls, though we did take advantage of the current chaos with regard to some of those stocks.
In the lodging sector specifically, we bought further into Hersha Hospitality (HT) and Apple Hospitality (APLE). This was for our High-Yield REIT portfolio platform – which currently offers dividend yields over 6% – and our Small-Cap REIT Portfolio.
Moving on to malls, we’re not adding too much exposure there considering continuing store closures and downsizing. Tread lightly…
Even so, we did pick up a few more shares in:
Simon Property Group (SPG)
Tanger Outlets (SKT)
Kimco Realty (KIM)
Urban Edge (UE)
Now, we are concerned about the pullback in tourism. Consumers are currently shying away from public gathering places and eating out. And there could be more of that to come.
(We wrote a recent article on Forbes here).
As such, we’ve been bearish about EPR (EPR). Its high concentration in experiential assets – including its $1 billion gaming bet – will probably drag it down for now.
The coronavirus could have a similar impact on senior housing REITs. The Center for Disease Control believes that those at highest fatality risk are the elderly or people with underlying health conditions.
With that said, skilled nursing REITs such as Omega Healthcare (OHI) could find themselves in more demand.
We also remain bullish with regard to Ventas (VTR), Healthcare Trust of America (HTA), Physicians Realty (DOC), and LTC Properties (LTC). And we nabbed a few shares of Medical Properties (MPW) as well, close to our $20 fair value price.
Moderate Coronavirus Risk
In this heightened state of awareness, we’re neutral on apartments (-12.8% w/w), industrials (-14.3% w/w), and self storage (-7.5% w/w).
Apartments are highlighted by their healthy demand, with the U.S. economy producing an annual 2.2 million non-farm jobs last decade.
Sadly, we don’t see too many bargains here. But we have warmed up recently to the prison sector, which is technically (though less traditionally) a form of housing.
CoreCivic (CXW), for one, remains one of our top-conviction Strong Buy picks. Shares were yielding 10.9% at last check.
For their part, industrial REITs see no signs of slowing as fundamental shifts in supply-chain patterns and e-commerce keep providing healthy demand. Most all of them are trading at sound value, with the exception of WPT Industrial (OTCQX:WPTIF), STAG Industrial (STAG), and Plymouth (PLYM).
For self storage, supply is the bigger issue. Rents are no longer necessarily cheap, and demand can at times border between need and discretionary spending.
With that said, we like Extra Space (EXR) and Public Storage (PSA) in this sector.
Source: Yahoo Finance
Low Risk (Unless Conditions Worsen Significantly)
Office (-12.99% w/w), data center (-12.6% w/w) and net lease (-12.9%) REITs are probably the lowest-risk property sectors right now. We’re already overweight on the latter two and took advantage of the recent pullback to purchase more shares.
Specifically, we like Digital Realty (DLR.PK) and CyrusOne (CONE). A slowing economy could impact IT spending, it’s true. But cloud and data growth are secular-driven trends that aren’t so easily influenced.
The net lease sector always has been recognized for its predictable sources of income. Its tenants are generally longer duration (10 years-plus) who therefore provide sustainable cash flow and dividend growth.
These REIT’s spread has been hurt by share price pullback. However, retreating 10-year figures remain supportive of the underlying value proposition.
Because of that, we recently staked out new positions in Vereit (VER) and Store Capital (STOR).
We also see value in a few specialty REITs such as Ladder Capital (LADR) and Iron Mountain (IRM). And Landmark Infrastructure (LMRK) also has popped back up on our Buy list as we allocate more capital to our Small-Cap and High-Yield portfolios on iREIT on Alpha.
In the end, we view the latest “Black Swan” event as a REIT SWAN (sleep well at night) opportunity. As always, thank you for the opportunity to be of service and happy SWAN Investing.
We want to make sure your retirement works right for you.
Author: Brad Thomas
Source: Seeking Alpha: The Most Reliable REITs For Retirees: The Coronavirus Edition