IYR: Performance And Valuation Update - August 2019

Summary

• IYR is up 23% in 2019, outperforming the broader market.
• Fund has benefited from a strong performance of its top holdings which include a number of fast growing "tech REITs."
• Dividend yield at 2.8% is now at the lowest level going back to 2008, suggesting IYR is relatively more expensive than it has been all decade.
• Expectations of declining interest rates are seen as a positive for REITs, but the implications from the yield curve could also have bearish consequences.

iShares U.S. Real Estate ETF (NYSE:IYR) is one of the largest domestic real estate and REIT-focused exchange traded funds with total assets under management of $4.5 billion. REITs have been exceptionally strong in 2019 with IYR up 23% year to date on a total return basis compared to 15% for the S&P 500 (SPY). That outperformance is in part based on a market trend favoring dividend-paying stocks with a perception of safe payouts, considering emerging concerns over the strength of the economy. There is an understanding that REITs should be more resilient in a potential cyclical downturn.

(Source: FinViz.com)

Separately, "tech-REITs" including firms that own and lease cell towers along with some data center names have been among the biggest winners in IYR this year, boosting the entire fund. This article highlights some of the trends in IYR, including the performance and valuation metrics for the underlying holdings along with our view on where the fund is headed next.

IYR Key Stats. source: iShares

IYR Underlying Performance

The table below includes selected metrics for the top 50 holdings of IYR. As mentioned, IYR is up 23% year to date while the average stock among 114 holdings in the entire fund is up 17%. Only 20 stocks have presented a negative return this year. The fund's performance has benefited from the relative strength of its top holdings.

IYR Top 50 Holdings Performance. Source: data by YCharts/ table author

CoStar Group, Inc. (CSGP), a provider of real estate listings and analytics information through a portfolio of brands including Apartments.com, is the biggest winner, up 80% in 2019. The company last reported revenue growth of 16% in the last quarter while the full year EPS consensus estimate is 23% higher from 2018. CSGP is classified as real estate services and not structured as a REIT. While most

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Investing includes risks, including loss of principal.