We are warning people to stay away from these yield plays: Strategist

Treasurys around the globe have tumbled near record lows in 2016 leaving yield-hungry investors hunting for places to put their cash. As the masses pile into dividend-heavy sectors like utilities and consumer staples, one strategist warns that the risk may not be worth the reward.

"This is a public service. If it has a high yield, you're accepting risk. That risk is that you're not going to get paid back in some manner so you know be careful of what you ask for," Fort Pitt analyst Kim Forrest told CNBC's "Trading Nation" on Friday. "The love of the utility stocks and higher-paying consumer staples has driven valuations up remarkably."

Utilities stocks have surged more than 16 percent this year, making them the best-performing sector in the S&P 500. Meanwhile, consumer staples are among the top five performers in the large-cap index, up 6 percent. Both sectors are among the most expensive in the S&P 500, sporting price-earnings ratios of 23 and 20, respectively.

"We are warning people away from these areas as they often don't understand that principle is at risk — mainly because investors have piled into these things long before them," she said. "Reversal of the trade is not going to be great," added Forrest. "We prefer the total return methodology and keeping cash as cash."

Chantico Global founder Gina Sanchez agreed that "utilities are probably the worst place to look for yield" despite the fact that investors tend to flock to it.

Instead, she recommended looking toward the REITs space. "If you're going to go that route and recognize that you're taking risk, you should probably maybe look to the business lenders, most people also go for real estate," she said Friday on "Trading Nation." She noted that business lenders offer a 10 to 11 percent yield. "That could be an interesting yield play," she added.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect