On today’s edition of Good Buy or Goodbye Interactive Brokers Chief Strategist Steve Sosnick breaks down two interest rate-sensitive sectors in a higher-for-longer economic backdrop.
Sosnick sees the Real Estate Select Sector (XLRE) ETF as a good buy, explaining that "it’s interest rate sensitive on the way in and the way out. They borrow a lot of money, but they pay a high dividend typically." The ETF covers a diverse set of companies, from offices to apartments to data centers, adding, "it’s OK to be in a diverse sector as long as you have winners to help out the losers." He points to the boom of residential real estate balancing out the struggling commercial side of real estate. He adds, "If you want to be in a sector that pays yield, this may be your better choice right now… But the underperformance, it’s done nothing for the better part of two years." However, he points to the risk of interest rates remaining high, putting the well-performing subsectors under pressure.
On the other side, Sosnick believes utilities (XLU) are "a manifestation of the AI craze that’s gotten a little bit out of hand." He explains that while the sector’s rate structure is pretty well fixed, the infrastructure is a much greater undertaking with high costs and a longer time to build. "So if you’re piling into utilities as an AI play, it’s going to take you years for that to pay off," he explains. For those who already have utilities, he encourages them to hold, but not buy any more.
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