Amid a more sanguine outlook for U.S. interest rates, real estate stocks and the related ETFs are among the best-performing sector opportunities this year. For instance, the iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) is higher by nearly 17% year-to-date.
Rising interest rates previously dragged on the REITs sector, hurting sales as would-be buyers faced higher borrowing costs and diminished the relative appeal of the sector’s dividend payouts. However, as the Fed showed a more dovish stance on its monetary policy this year, revealing it will be more patient with future rate hikes, investors turned back to REITs for their attractive yields, strong earnings growth and cheap valuations, the Wall Street Journal reports.
While IYR is already up by an impressive percentage this year, the fund may be worth considering this month due to its historically bullish April showings.
“IYR has been among the best ETFs to own in the month of April, looking back 10 years. Per data from Schaeffer’s Senior Quantitative Analyst Rocky White, the fund has ended the month higher 80% of the time, averaging a gain of 4.63%,” according to Schaeffer’s Investment Research.
It appears unlikely the Federal Reserve will raise interest rates this year and some bond market observers are wagering on a rate cut later in 2019. Either scenario could be beneficial to REIT and ETFs like IYR.
As the Fed eases back on policy tightening, the payouts on U.S. government bonds have also declined, pushing investors to look for more attractive options in the stock market such as REITs that typically deliver bond-esque returns and could potentially bring higher yields.
“It’s already been a banner year for IYR shares, which notched a fresh 12-year high of $87.84 earlier today,” according to Schaeffer’s. “The ETF has rallied 17% already in 2019, with recent pullbacks contained by its 30-day moving average. Another 4.63% gain from IYR’s current price of $87.69 would put the shares around $91.75 — in territory not charted since early 2007, when the fund was exploring record highs.”
The $4.64 billion IYR follows the Dow Jones U.S. Real Estate Index and holds 114 real estate stocks.
For more information on the real estate investment trusts segment, visit our REITs category.