International REITs anyone?

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International REITs anyone?

Postby Tigermoose » Sat Dec 15, 2012 4:06 pm

Where does an international REIT fit in to a portfolio?

Such as Vanguard Global ex-U.S. Real Estate Index Fund Investor Shares ?
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Re: International REITs anyone?

Postby steve r » Sat Dec 15, 2012 4:59 pm

I would imagine most Bogleheads would not hold this.

In my view it adds some diversification and some global inflation protection - but I do not own it. REITS tend to be a small allocation in portfolios, and International REITS would need an even smaller allocation.

I have seen prior threads on this topic, but none in quite some time.
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Re: International REITs anyone?

Postby larryswedroe » Sat Dec 15, 2012 9:09 pm

two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.

Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.
Example DFA int'l REIT has P/CF of about 11.5 vs about 16.5 for Vanguard US REIT. That is huge difference in expected returns, swamping loss of FTC

Hope that is helpful
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Re: International REITs anyone?

Postby petrico » Sat Dec 15, 2012 9:46 pm

larryswedroe wrote:two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.

Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.
Example DFA int'l REIT has P/CF of about 11.5 vs about 16.5 for Vanguard US REIT. That is huge difference in expected returns, swamping loss of FTC

Hope that is helpful
Larry

Thanks, Larry, that is very helpful. I never really knew that price/cash flow was the appropriate measure of valuation for real estate funds.

Another example, Vanguard Global ex-US Real Estate ETF (VNQI) has a price/cash flow less than half that of its US counterpart.

Vanguard REIT Index ETF (VNQ, ER=0.10%) price/cash flow = 16.73
DFA International Real Estate Sec I (DFITX, ER=0.42%) price/cash flow = 11.48
Vanguard Global ex-US Real Estate ETF (VNQI, ER=0.35%) price/cash flow = 8.05

Your post is reassuring for someone who decided to split a 10% REIT slice 50-50 between US and international (with international held in a ROTH).

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Re: International REITs anyone?

Postby mlewis » Sun Dec 16, 2012 12:10 am

If you subscribe to a cap-weighting ideology, International REITs should be about 2/3 (I think, could be wrong) of your total REIT holding.

I see no reason not to split-up your REIT holding, if you have one, between International and Domestic.

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Re: International REITs anyone?

Postby abuss368 » Sun Dec 16, 2012 12:22 am

steve r wrote:I would imaging most Bogleheads would not hold this.

In my view it adds some diversification and some global inflation protection - but I do not own it. REITS tend to be a small allocation in portfolios, and International REITS would need an even smaller allocation.


This was my experience too. I ran the numbers so many difference ways and the amount allocation was just not material.

Not worth the hassle. I will stay the course with the Total International Index Fund.

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Re: International REITs anyone?

Postby Cruncher » Sun Dec 16, 2012 3:19 am

I have access to DFGEX (er 0.86%) in my 401k. I split my REIT AA between DFGEX, SCHH (er 0.07%), and VNQ (er 0.12%).

DFGEX makes up about half my RE AA. FWIW.
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Re: International REITs anyone?

Postby STC » Sun Dec 16, 2012 7:48 am

I have a 10% REIT allocation. Of that, 1/3 is in VNQI and 2/3 in VNQ. I have seen how VNQI is the least correlated equity I own, and am considering a 1/2, 1/2 allocation.
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Re: International REITs anyone?

Postby BBL » Sun Dec 16, 2012 8:06 am

STC wrote:I have a 10% REIT allocation. Of that, 1/3 is in VNQI and 2/3 in VNQ. I have seen how VNQI is the least correlated equity I own, and am considering a 1/2, 1/2 allocation.



If you're going to split a 10% allocation to REIT then you might as well go 50:50.

3.34% of almost anything is probably not worth it [won't really move the needle, more nuisance than it is worth] 5% is an improvement.

How often do you allow yourself to modify your IPS? I'd put that in the hopper for consideration on the next revision. :beer
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Re: International REITs anyone?

Postby STC » Sun Dec 16, 2012 8:14 am

BBL wrote:
STC wrote:I have a 10% REIT allocation. Of that, 1/3 is in VNQI and 2/3 in VNQ. I have seen how VNQI is the least correlated equity I own, and am considering a 1/2, 1/2 allocation.



If you're going to split a 10% allocation to REIT then you might as well go 50:50.

3.34% of almost anything is probably not worth it [won't really move the needle, more nuisance than it is worth] 5% is an improvement.

How often do you allow yourself to modify your IPS? I'd put that in the hopper for consideration on the next revision. :beer


January is my IPS review. I added VNQI last year, but wanted to tip toe into it as it is a very new instrument. I also want to see what the distribution is. Could be in for a nasty surprise... Or a happy one
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Re: International REITs anyone?

Postby abuss368 » Sun Dec 16, 2012 8:49 am

BBL wrote:If you're going to split a 10% allocation to REIT then you might as well go 50:50.

3.34% of almost anything is probably not worth it [won't really move the needle, more nuisance than it is worth] 5% is an improvement.

How often do you allow yourself to modify your IPS? I'd put that in the hopper for consideration on the next revision. :beer



Exactly 3% does nothing. Those who select 5% or less achieve peace of mind, but are not moving the needle one way or the other. International Real Estate (not REITs) reminds me of this as it is not a pure REIT fund and is more oil and water when compared to the US pure REIT fund. There is a lot on the Internet discussing exactly this.

At the end of the day if it makes an investor sleep at night, regardless of the weight, that is all that matters.
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Re: International REITs anyone?

Postby KyleAAA » Sun Dec 16, 2012 11:11 am

I plan to buy in once the ER comes down a bit. Right now I'm 100% in the admiral shares of REIT index fund, so the difference in expenses is too much for me to handle. When it gets in the 0.25-.30% range I'll bite. I haven't thought too much about it yet, but I'll probably go with something along the lines of 15-20% in REITs with an even split.
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Re: International REITs anyone?

Postby garlandwhizzer » Sun Dec 16, 2012 12:53 pm

larryswedroe wrote:
Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.


I totally agree with Larry on this one. I own no US REITS because I feel they are fundamentally overvalued at present. I never diversify into a sector that I think is overvalued and over-owned. On the other hand, VNQI is a relative bargain from a valuation perspective even after its impressive performance in 2012,up about 37.7% YTD. I bought it in 2011, before its big run-up strictly on a valuation basis and will continue to hold it at a 10% of equity allocation as long as its valuation metrics remain strong. The fear of a new thing--not a classical REIT structure like US REITS and foreign holdings heavily concentrated in one area, the Pacific rim, two reasons most Bogleheads give for avoiding it--creates market inefficiency in pricing and therefore investment opportunity in my opinion. Where there is no fear, there is often little value.

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Re: International REITs anyone?

Postby dharrythomas » Sun Dec 16, 2012 2:00 pm

I own a little in my Roth IRA. I started out the year about equal to my US REITs Admiral Shares. Now International is ahead by a statistically significant margin. I should sell a little but have re-allocated the distributions instead. I don't have enough to move the needle but enjoy the REIT, PM&M and Value Tilt in my Roth.

I haven't done badly but I'd have been better off to just dump it all in Wellington, STAR, or LifeStrategy Moderate Growth when I started and never touched it. :oops:

Good Luck

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Re: International REITs anyone?

Postby nedsaid » Sun Dec 16, 2012 3:00 pm

International REITs are probably a good idea. There does get to be a point where "slice and dice" gets to be ridiculous as we keep finding more and more asset classes to invest in.

I slice and dice myself, but at some point you just have to stop. I draw the line at Indonesian Micro-Cap Value. :D
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Re: International REITs anyone?

Postby STC » Sun Dec 16, 2012 4:51 pm

nedsaid wrote:International REITs are probably a good idea. There does get to be a point where "slice and dice" gets to be ridiculous as we keep finding more and more asset classes to invest in.

I slice and dice myself, but at some point you just have to stop. I draw the line at Indonesian Micro-Cap Value. :D



I draw my line as a question of "is this a significant portion of global GDP, and am I already adequately exposed?" In the case of intl real estate... I was not.
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Re: International REITs anyone?

Postby burma7734 » Sun Dec 16, 2012 6:55 pm

Long time lurker... first time poster.

My decision to hold VNQI was was driven by my goal to hold globally diversified positions in each asset class (stock, bond, real estate). My allocation target is 10% total REIT, with 40% of that as international; both REIT positions held in my Roth IRA.

Portfolio size might impose some practical limit to be worth considering such a holding, such that a position of less than $10k (so roughly a $250k portfolio) might be considered "noise". However, with the VNQI purchased through a Vanguard account, there really is no cost effective minimum.

I think one should consider their total real estate exposure when determining REIT allocation. I sold my house when I moved a few years ago and I am renting now so I have no US real estate equity. When I have equity in a house in the USA again, I would plan to account for that asset in my US vs Int real estate allocation. Just thought for you home owners out there to consider.
Last edited by burma7734 on Sun Dec 16, 2012 8:08 pm, edited 1 time in total.
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Re: International REITs anyone?

Postby grabiner » Sun Dec 16, 2012 8:04 pm

larryswedroe wrote:two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.


The FTC was only 5% of the dividend for Vanguard Global Real Estate last year (see Vanguard Foreign Tax Worksheets), and 4% has also been the historical percentage for other foreign real estate ETFs.

Thus foreign REIT funds and ETFs should go in tax-deferred, as there isn't that much lost to the foreign tax credit.

I hold Vanguard's fund in my Roth IRA as half my real estate allocation.
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Re: International REITs anyone?

Postby Jerilynn » Mon Dec 17, 2012 12:12 am

steve r wrote:I would imagine most Bogleheads would not hold this.

In my view it adds some diversification and some global inflation protection - but I do not own it. REITS tend to be a small allocation in portfolios, and International REITS would need an even smaller allocation.

I have seen prior threads on this topic, but none in quite some time.


I own VNQI. I don't know if this will turn out to be a good investment or not, but so far this year it's been my best performer. I can't complain too much.
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Re: International REITs anyone?

Postby azanon » Mon Dec 17, 2012 8:16 pm

Tigermoose wrote:Where does an international REIT fit in to a portfolio?

Such as Vanguard Global ex-U.S. Real Estate Index Fund Investor Shares ?


I would say as much as 15-20% of your total foreign holdings. For 2012, I've only held this fund, and no US REIT (other than the small amount I have to hold due to being in major US indexes). As Larry said, the valuations are just so much better overseas right now.

As one might expect, this fund is easily my top performer for 2012.

I'm also a BIG fan of the Vanguard funds that have both cost to buy and liquidate, since you can get an earnings boost from those that buy and sell a lot*.

* As a reminder, with Vanguard shares you are an owner of a fund. So if someone pays that 0.25% fee, they're paying it to you if you own said fund. Chances are, there are just as many buyers as sellers on a given day, meaning all those 0.25% fees aren't needed for anything other than lining your pocket.
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Re: International REITs anyone?

Postby edge » Mon Dec 17, 2012 8:57 pm

I own DFGEX in tax deferred, 7% of portfolio
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Re: International REITs anyone?

Postby abuss368 » Tue Dec 18, 2012 10:53 am

20% - 30% of our equity is in REITs. I would consider this fund if the purchase fee was removed and the expense ratio was .25 or less.

On a positive note the fund's assets have moved past $600 million in two short years.
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Re: International REITs anyone?

Postby Tigermoose » Tue Dec 18, 2012 11:20 am

larryswedroe wrote:two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.

Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.
Example DFA int'l REIT has P/CF of about 11.5 vs about 16.5 for Vanguard US REIT. That is huge difference in expected returns, swamping loss of FTC

Hope that is helpful
Larry



Very helpful. Thanks.

I'm wanting to increase my REIT holdings in my Roth IRA, but I have seen on another thread that the US REIT's are not that great of a value at this point. So my options seem to be once of three:

1) Ignore US REIT value and buy US REIT anyway (original AA plan)
2) Buy the international REIT instead - Vanguard Global ex-U.S. Real Estate Index Fund
3) Don't buy any REITs, but instead buy more Vanguard Total Stock Market Index

#2 would allow for greater diversification and would meet my AA plan. However, I am concerned about the risk of this international REITs. Perhaps there is a reason that this REIT is a value? When looking at the composition, it has Japan 19%, Hong Kong 15%, Australia 12%, Singapore 8%, China 8%... I know nothing about the real estate market in the Pacific. This fund is heavily weighted to the Pacific region - 55.3%
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Re: International REITs anyone?

Postby Socrativestor » Tue Dec 18, 2012 11:47 am

Tigermoose wrote:
larryswedroe wrote:two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.

Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.
Example DFA int'l REIT has P/CF of about 11.5 vs about 16.5 for Vanguard US REIT. That is huge difference in expected returns, swamping loss of FTC

Hope that is helpful
Larry



Very helpful. Thanks.

I'm wanting to increase my REIT holdings in my Roth IRA, but I have seen on another thread that the US REIT's are not that great of a value at this point. So my options seem to be once of three:

1) Ignore US REIT value and buy US REIT anyway (original AA plan)
2) Buy the international REIT instead - Vanguard Global ex-U.S. Real Estate Index Fund
3) Don't buy any REITs, but instead buy more Vanguard Total Stock Market Index

#2 would allow for greater diversification and would meet my AA plan. However, I am concerned about the risk of this international REITs. Perhaps there is a reason that this REIT is a value? When looking at the composition, it has Japan 19%, Hong Kong 15%, Australia 12%, Singapore 8%, China 8%... I know nothing about the real estate market in the Pacific. This fund is heavily weighted to the Pacific region - 55.3%

I'm not Larry, but ...

A) Personally, #1 or #3 or a variant of them is my preference. i.e. Have an AA and stick to it. That's the whole (or much of the) point. OTOH, if neither #1 or #3 AAs seem ideal to you, then come up with a better AA (#4) and then stick to that

B) As mentioned above, there is merit to splitting your REIT allocation -- assuming it's large enough to make sense (either in $$ or %% terms -- which in turns depends in part on the size of your portfolio). A 50:50 US:Intl REIT allocation that totals your desired REIT allocation makes a lot of sense IMHO. It gives additional diversification (thus taking advantage of relative valuations and perhaps allaying some of your intl concerns) and automatically allows for future rebalancing PER YOUR AA between US and Intl as relative valuations, etc. fluctuate.

C) Even a 1%:1% allocation can make sense IMHO if your portfolio is large enough and depending on the amount of tax-sheltered space you have. Sure, it's not going to materially change the overall performance of your portfolio much, but it can still add value. And if it feels "right" to you and you can stick with it, that's most important. Some folks (perhaps including me) are confessed "asset class junkies". No harm there. :sharebeer

Good luck.
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Re: International REITs anyone?

Postby Tigermoose » Tue Dec 18, 2012 11:52 am

Socrativestor wrote:B) As mentioned above, there is merit to splitting your REIT allocation -- assuming it's large enough to make sense (either in $$ or %% terms -- which in turns depends in part on the size of your portfolio). A 50:50 US:Intl REIT allocation that totals your desired REIT allocation makes a lot of sense IMHO. It gives additional diversification (thus taking advantage of relative valuations and perhaps allaying some of your intl concerns) and automatically allows for future rebalancing PER YOUR AA between US and Intl as relative valuations, etc. fluctuate.

C) Even a 1%:1% allocation can make sense IMHO if your portfolio is large enough and depending on the amount of tax-sheltered space you have. Sure, it's not going to materially change the overall performance of your portfolio much, but it can still add value. And if it feels "right" to you and you can stick with it, that's most important. Some folks (perhaps including me) are confessed "asset class junkies". No harm there. :sharebeer

Good luck.



I do have some US REIT, and so adding the international REIT could give me some diversification. I like that plan. Thanks for the advice!
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Re: International REITs anyone?

Postby Tigermoose » Wed Dec 19, 2012 6:50 am

azanon wrote:* As a reminder, with Vanguard shares you are an owner of a fund. So if someone pays that 0.25% fee, they're paying it to you if you own said fund. Chances are, there are just as many buyers as sellers on a given day, meaning all those 0.25% fees aren't needed for anything other than lining your pocket.


What is the purpose of the purchase and redemption fees? Is it to reduce volatility in the fund?

Fees

Purchase fee
The fund assesses a 0.25% fee ($2.50 per $1,000) on purchases. The fee is paid directly to the fund and therefore is not considered a load.

Redemption fee
The fund assesses a 0.25% fee ($2.50 per $1,000) on redemptions. The fee is paid directly to the fund and therefore is not considered a load.
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Re: International REITs anyone?

Postby STC » Wed Dec 19, 2012 7:58 am

Tigermoose wrote:
azanon wrote:* As a reminder, with Vanguard shares you are an owner of a fund. So if someone pays that 0.25% fee, they're paying it to you if you own said fund. Chances are, there are just as many buyers as sellers on a given day, meaning all those 0.25% fees aren't needed for anything other than lining your pocket.


What is the purpose of the purchase and redemption fees? Is it to reduce volatility in the fund?

Fees

Purchase fee
The fund assesses a 0.25% fee ($2.50 per $1,000) on purchases. The fee is paid directly to the fund and therefore is not considered a load.

Redemption fee
The fund assesses a 0.25% fee ($2.50 per $1,000) on redemptions. The fee is paid directly to the fund and therefore is not considered a load.


The ETF has no such fee. VNQI
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Re: International REITs anyone?

Postby KyleAAA » Wed Dec 19, 2012 9:35 am

Tigermoose wrote:
azanon wrote:* As a reminder, with Vanguard shares you are an owner of a fund. So if someone pays that 0.25% fee, they're paying it to you if you own said fund. Chances are, there are just as many buyers as sellers on a given day, meaning all those 0.25% fees aren't needed for anything other than lining your pocket.


What is the purpose of the purchase and redemption fees? Is it to reduce volatility in the fund?


Usually those fees are to compensate the fund for the added costs of buying/selling in less liquid markets (or markets where it's simply more expensive to change for whatever reason).
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Re: International REITs anyone?

Postby kenyan » Wed Dec 19, 2012 10:16 am

It's on my radar, as I do S&D and have an REIT allocation. My non-REIT domestic/international equity split is 50/50. However, I would have to increase my REIT stake further to add it, as I want to avoid slices that are smaller than 5% of my portfolio. With REIT currently 10% of equity, a 50/50 stake would put me at 3.75% of my portfolio. I'll look at it again during my next IPS review.
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Re: International REITs anyone?

Postby Tigermoose » Wed Dec 19, 2012 11:56 am

STC wrote:The ETF has no such fee. VNQI



Any reason to go with the mutual fund vs. the ETF? Seems like the ETF clearly offers a better deal. Lower expense ration (.35 compared to .5), no minimum, and no purchase or redemption fees. I feel like I must be missing something.
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Re: International REITs anyone?

Postby kenyan » Wed Dec 19, 2012 12:02 pm

Might not have the ETF available (employer account) or just not want to deal with the slight additional complications that ETFs bring. Aside from that, it's a similar situation as VSS versus VFSVX, although the differences are even more striking in that case (0.28 vs. 0.50% ER, 0.50% purchase/redemption).

All things considered, the ETFs are superior in these cases, a fact that is reflected in the relative balances of the different share classes.
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Re: International REITs anyone?

Postby Random Musings » Wed Dec 19, 2012 12:13 pm

At 0.35%, the Int'l REIT is part of my REIT holdings - I'll bet the E.R. goes down in the future as AUM goes up.....

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Re: International REITs anyone?

Postby BBL » Wed Dec 19, 2012 1:41 pm

I feel like I must be missing something.


At the close yesterday the premium to NAV was around .40 for that ETF - that is a cost. You will also pay a spread of [depends] when you buy the ETF. Like kenyan said in some cases the ETF is preferable.
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Re: International REITs anyone?

Postby Tigermoose » Fri Dec 28, 2012 8:06 am

petrico wrote:
larryswedroe wrote:two key points
GREAT diversifier, as its all local. No good location as not tax efficient and lose FTC (roughly 10% of div yield).
So have to decide how much you think diversification is worth.

Right now IMO worth a lot relative to US REITS as they are very cheap relatively speaking in valuation metrics, the best predictor of returns.
Example DFA int'l REIT has P/CF of about 11.5 vs about 16.5 for Vanguard US REIT. That is huge difference in expected returns, swamping loss of FTC

Hope that is helpful
Larry

Thanks, Larry, that is very helpful. I never really knew that price/cash flow was the appropriate measure of valuation for real estate funds.

Another example, Vanguard Global ex-US Real Estate ETF (VNQI) has a price/cash flow less than half that of its US counterpart.

Vanguard REIT Index ETF (VNQ, ER=0.10%) price/cash flow = 16.73
DFA International Real Estate Sec I (DFITX, ER=0.42%) price/cash flow = 11.48
Vanguard Global ex-US Real Estate ETF (VNQI, ER=0.35%) price/cash flow = 8.05

Your post is reassuring for someone who decided to split a 10% REIT slice 50-50 between US and international (with international held in a ROTH).

--Pete


Where does one find the cash flow number in order to make this calculation. Ignorance is bliss, but sometimes it just makes you feel stupid :wink:
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Re: International REITs anyone?

Postby Liquid » Sat Dec 29, 2012 8:39 am

There is a reason vanguard's fund is not called "international REIT fund," several posters here are doing a diservice but representing it as such.
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Re: International REITs anyone?

Postby Socrativestor » Sat Dec 29, 2012 9:19 am

Liquid wrote:There is a reason vanguard's fund is not called "international REIT fund," several posters here are doing a diservice but representing it as such.

I (partly) agree and this used to be a bigger concern for me in the past than it is now. VNQI is currently 50% REIT and 50% REOC. As such, it is not perfect; but is also not terrible, IMHO. I assume that the REIT proportion will grow slowly over time as REITs become more common around the world (but I have no really basis for this assumption).

VNQI is thus part-asset-class/part-equity-sector with the fortunes of the equity sector component presumably closely tied to the fortunes of the asset class. As such, I think the asset class part makes sense in its own right and the equity sector part can make sense in much the same way that an energy sector fund (tied to energy prices) or a precious metals fund (tied to PM prices) can make sense.

Overall, then, I have become persuaded VNQI can have a placed as part of a global "REIT" allocation, with good diversification benefits, etc.
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Re: International REITs anyone?

Postby claimui » Sat Dec 29, 2012 9:50 am

Liquid wrote:VNQI is thus part-asset-class/part-equity-sector with the fortunes of the equity sector component presumably closely tied to the fortunes of the asset class. As such, I think the asset class part makes sense in its own right and the equity sector part can make sense in much the same way that an energy sector fund (tied to energy prices) or a precious metals fund (tied to PM prices) can make sense.


Actually, REITs in general are part asset class, part equity sector. The value of a REIT depends not only on the value of the underlying asset (the real estate) but also on the REIT company's business, management and investment performance.

In fact, VNQI / VGXRX real estate companies are (from what I can see) basically the same as REITs, just not legally structured as such for historical reasons. The largest holdings are owners of shopping malls, office buildings, etc. Exactly the same as REITs, just a different legal/tax structure.

So it is incorrect to think of REITs as the asset class and VNQI as part-asset/part-equity. They are both part-asset, part-equity. If you want the asset class directly, buy a house. (Not very diversified, though.) Otherwise, personally I don't make a fuss about the distinction between a foreign REIT and a foreign real estate company. Neither do local investors (in my experience). They expect their local real estate companies to invest in real estate and pay dividends out of their rental income, just like their local REITs.

I suppose the mining companies are conceptually similar but I think they are really in a world of their own. I'm too lazy to look up right now, but I recall that they are not that well correlated with the underlying assets at all. Luckily there are gold ETFs and commodity index funds for investors who really want exposure to the assets without the (enormous) equity risks.
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Re: International REITs anyone?

Postby petrico » Sat Dec 29, 2012 11:37 am

Tigermoose wrote:Where does one find the cash flow number in order to make this calculation. Ignorance is bliss, but sometimes it just makes you feel stupid :wink:

That's easy -- no computations necessary. Just go to M*, search for the fund you want to research, and then click on the "portfolio" tab. Under the heading "style details" you'll find the price/cash flow metric already computed for you.

Vanguard Global ex-US Real Estate ETF VNQI

M* is a wonderful place for information. Their fund ratings -- by their own admission -- are not even as good a predictor of future performance as blindly picking the lowest cost funds. But the other services they provide are great.

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Re: International REITs anyone?

Postby zaboomafoozarg » Sat Dec 29, 2012 12:15 pm

I decided to hold 1/3 of my real estate allocation in VNQI. Since my stocks are 2/3 US, 1/3 International, figured I'd do the same for real estate.
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Re: International REITs anyone?

Postby Rob5TCP » Sat Dec 29, 2012 12:22 pm

I like the discussion on this topic and have been considering this for awhile. I intend to go with a similar international percentage as I have with my regular funds (about 35%). Is there any reason to buy the fund instead of the ETF. There seems to be a rather large cost differential.

If held for a number of years, would the .25% charge for others buying and selling this offset the initial cost plus the additional charge each year. Also, with an ETF can there be automatic reinvestment of dividends.
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Re: International REITs anyone?

Postby petrico » Sat Dec 29, 2012 12:31 pm

Rob5TCP wrote:Also, with an ETF can there be automatic reinvestment of dividends.

If held directly at Vanguard the answer is a definite "yes." I can't comment on dividend reinvestment capabilities if the Vanguard ETF is held at a different brokerage.

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Re: International REITs anyone?

Postby claimui » Sat Dec 29, 2012 12:35 pm

The difference between the ETF and the fund was already mentioned above. The ETF right now is trading at a premium to NAV -- that is a cost because the price you pay is more than the value of the assets that you get.

Similarly, eventually when you want to sell your shares, it is possible that you could have to sell them at a discount to NAV (especially if there are a lot of sellers and not a lot of buyers).

With the fund, everybody who buys on a certain day, and everybody who sells on a certain day, all get the same price. The number of buyers or sellers at any given time does not (directly) affect the price of the fund.

Personally I prefer the simplicity of the fund. I know the costs are higher, but I also know exactly how they will affect the price I buy or sell at any given time. To me, that's better than the uncertainty of how I will be impacted by the bid-ask spread or trading volume at any given time I want to buy or sell shares.
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Re: International REITs anyone?

Postby abuss368 » Sat Dec 29, 2012 8:30 pm

claimui wrote:
Actually, REITs in general are part asset class, part equity sector. The value of a REIT depends not only on the value of the underlying asset (the real estate) but also on the REIT company's business, management and investment performance.

In fact, VNQI / VGXRX real estate companies are (from what I can see) basically the same as REITs, just not legally structured as such for historical reasons. The largest holdings are owners of shopping malls, office buildings, etc. Exactly the same as REITs, just a different legal/tax structure.

So it is incorrect to think of REITs as the asset class and VNQI as part-asset/part-equity. They are both part-asset, part-equity. If you want the asset class directly, buy a house. (Not very diversified, though.) Otherwise, personally I don't make a fuss about the distinction between a foreign REIT and a foreign real estate company. Neither do local investors (in my experience). They expect their local real estate companies to invest in real estate and pay dividends out of their rental income, just like their local REITs.

I suppose the mining companies are conceptually similar but I think they are really in a world of their own. I'm too lazy to look up right now, but I recall that they are not that well correlated with the underlying assets at all. Luckily there are gold ETFs and commodity index funds for investors who really want exposure to the assets without the (enormous) equity risks.


If I recall the arguement that David Swensen put forth in his excellent book Unconventional Success when he recommended US REITs (I saw no reference to International REITs / Real Estate but the book was published in 2005), was he liked the TIAA-CREF and Vanguard funds as a separate asset class due to their unique tax structure.

When I attended a seminar at my University in the spring, and had the opportunity to meet Dr. Swensen, the recommendation was still US REITs (no International REIT / Real Estate fund) and he again cited the unique and beneficial tax structure.
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Re: International REITs anyone?

Postby petrico » Tue Jan 01, 2013 10:15 am

This was a good year to be holding Vanguard Global ex-U.S. Real Estate ETF (VNQI). The 2012 return for VNQI was 42.54%, by far Vanguard's best performing fund for the year -- bar none. No other fund was even close.

NOTE: This should *not* be taken as a recommendation to chase performance!

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Re: International REITs anyone?

Postby grabiner » Tue Jan 01, 2013 10:58 am

petrico wrote:This was a good year to be holding Vanguard Global ex-U.S. Real Estate ETF (VNQI). The 2012 return for VNQI was 42.54%, by far Vanguard's best performing fund for the year -- bar none. No other fund was even close.

NOTE: This should *not* be taken as a recommendation to chase performance!


But it should be taken as an indication of the value of this fund as a diversifier. When an asset class outperforms the broad market by more than 20% (Total Stock Market and Total International gained 16.41% and 18.22%) and no other fund holds a significant amount of that asset class, adding a small amount of the asset class should have a meaningful diversification effect. The downside is that the fund is just as likely to be next year's cellar-dweller; Precious Metals and Mining lost 12.98%.

It is also notable that US and foreign REITs do not correlate well; US REITS have been flat since July, while foreign real estate has gone steadily up. Again, this is an indication of a good diversifier.
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Re: International REITs anyone?

Postby HongKonger » Tue Jan 01, 2013 11:08 am

I have 15% of total portfolio in 2 actual REITs (not an index or funds). Neither are in the US. 2012 returns are 81% for one and the other 41%. I'm happy.
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Re: International REITs anyone?

Postby petrico » Tue Jan 01, 2013 11:36 am

grabiner wrote:
petrico wrote:This was a good year to be holding Vanguard Global ex-U.S. Real Estate ETF (VNQI). The 2012 return for VNQI was 42.54%, by far Vanguard's best performing fund for the year -- bar none. No other fund was even close.

NOTE: This should *not* be taken as a recommendation to chase performance!


But it should be taken as an indication of the value of this fund as a diversifier. When an asset class outperforms the broad market by more than 20% (Total Stock Market and Total International gained 16.41% and 18.22%) and no other fund holds a significant amount of that asset class, adding a small amount of the asset class should have a meaningful diversification effect. The downside is that the fund is just as likely to be next year's cellar-dweller; Precious Metals and Mining lost 12.98%.

It is also notable that US and foreign REITs do not correlate well; US REITS have been flat since July, while foreign real estate has gone steadily up. Again, this is an indication of a good diversifier.

All true.

I had wanted to make the specific point on non-correlation with US REITs, but forgot to. Using the correlation tool at assetcorrelation.com, since its inception the VNQI,VNQ correlations have typically been below 75% and often below 50%.

Image

Soon I'll be rebalancing out of VNQI and into a poorer performing asset class. (Wonder how much momentum I'll give up in doing so...)

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Re: International REITs anyone?

Postby abuss368 » Tue Jan 01, 2013 12:06 pm

What percentage of the fund is actual REITs? I thought I read it was 40% - 50%.

I read the most recent annual report for the fund. The fine print noted the expense ratio for the year was .45.

Can we expect a decrease soon?
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Re: International REITs anyone?

Postby HurdyGurdy » Tue Jan 01, 2013 2:01 pm

(Please let me know if Yahoo is not the best producer of these graphs)
Image

It would seem that something happened after April/May of 2012.
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Re: International REITs anyone?

Postby EmergDoc » Wed Jan 02, 2013 5:49 am

I'd seriously considered adding this fund when it came out (just to split REITs between US and Intl for more diversification) but decided to keep things simple. Now, of course, I wish I had. What a great year! But the % I was thinking about putting in it wouldn't have made much of a difference.
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