REIT Percentages Revealed!

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REIT Percentages Revealed!

Postby CyberBob » Mon Nov 26, 2007 2:12 pm

Back in March, I figured out the percentage of REIT's in the Total Stock Market Index Fund. (using December 31, 2006 annual report numbers).

Today I got really curious about how much the performance of an evenly weighted large, mid, small and growth/value portfolio was affected by a possible overweighting in REIT's.
Well, of course the first thing I had to know was what percentage each of Vanguard's indexes had in REIT's. Unfortunately, that information didn't appear to be readily available anywhere. So, I created a little script to add them up. (using 10/31/2007 holdings from Vanguard.com).Edit: Holdings details at Vanguard.com are end-of-quarter 9/30/2007.

And since I thought the results may be of interest to other people, here are the numbers:
Image

Bob :)
Last edited by CyberBob on Mon Nov 26, 2007 5:00 pm, edited 1 time in total.
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Postby sscritic » Mon Nov 26, 2007 2:21 pm

Bob:

Would you please run your script on Extended Market Index?

Thanks.
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Postby Buddtholomew » Mon Nov 26, 2007 2:49 pm

I too am very interested in the percentage of REITS in the Extended Market Index (VEXMX). I am still making a decision on whether to invest 5% of my portfolio in the REIT fund (VGSIX) directly or purchase Small-Cap value to complement my existing VEXMX holdings. I may be happy with the percentage of REIT exposure with VEXMX and VISVX and forego holding VGSIX.
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Postby expo62 » Mon Nov 26, 2007 3:04 pm

Thanks very much Bob!

I guess the question now is if an investor decides to allocate a certain % of their portfolio to a REIT fund....how does this information affect their decision?.

Should their contribution to a REIT fund be reduced by the amount they might already hold in the other funds? If someone (for example) has a large position in SCV - are they not overweighting REIT relative to their original intent?

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Postby Tramper Al » Mon Nov 26, 2007 3:12 pm

I've got a question that has bugged me for years.

REITs are so different from a tax (and thus optimal location) standpoint. So, why hasn't anyone come out with a Small Cap Value ex-REIT fund/ETF? Or Extended Market ex-REIT, or . . . well you get the idea.

I have a REITs allocation that I can find room for in tax-deferred accounts. But small cap value and other classes are like balanced funds: no location is optimal due to the mixed composition. It would be nice to be able to put those non-qualified REIT distributions where they belong, and keep LTCGs where they belong.
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Postby InvestingMom » Mon Nov 26, 2007 3:14 pm

expo62 wrote:Thanks very much Bob!

I guess the question now is if an investor decides to allocate a certain % of their portfolio to a REIT fund....how does this information affect their decision?.

Should their contribution to a REIT fund be reduced by the amount they might already hold in the other funds? If someone (for example) has a large position in SCV - are they not overweighting REIT relative to their original intent?

expo62


I have always thought that anyone investing in a REIT is in effect overweighting the market. I don't know why such special consideration is given to REITS as compared to other specialty funds. The only good reason I have heard is that many REITs are not publicly traded...and of course much of real estate ownership is not publicly held....but I fall back on advice that if you already own a home then you may already have enough real estate ownership.

CyberBob, Thanks for such great information!
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Postby zhiwiller » Mon Nov 26, 2007 3:21 pm

InvestingMom wrote:I have always thought that anyone investing in a REIT is in effect overweighting the market. I don't know why such special consideration is given to REITS as compared to other specialty funds.


Backtesting.
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Postby ddb » Mon Nov 26, 2007 3:26 pm

sscritic wrote:Bob:

Would you please run your script on Extended Market Index?

Thanks.


Well, you can kind of infer the result from those figures already posted. Small cap blend is 6.08% REIT and Mid cap blend is 5.81% REIT. Stands to reason that extended market would be somewhere a little less than 6% REIT (yes, I realize not perfect because VEXMX picks up at or around company #501, whereas VIMSX starts at or around company #1001).

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REIT's

Postby Gregory » Mon Nov 26, 2007 3:31 pm

Thanks, Bob!

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Postby InvestingMom » Mon Nov 26, 2007 3:33 pm

zhiwiller wrote:
InvestingMom wrote:I have always thought that anyone investing in a REIT is in effect overweighting the market. I don't know why such special consideration is given to REITS as compared to other specialty funds.


Backtesting.

Excuse my ignorance...what does that mean?
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Postby LH » Mon Nov 26, 2007 3:51 pm

InvestingMom wrote: I don't know why such special consideration is given to REITS as compared to other specialty funds.


The fundamental reason for me is that I view REIT as a valid proxy for the asset class of land.

Land is simply a valid asset class unto itself. It has a lot of history behind it, from the talmud 1/3 land, 1/3 business, 1/3 reserve(cash) statement onward in history.

The reasons that REITS are different from other stocks, and not just another sector is:

The REIT law. They are simply fundamentally legally different from other stocks in many regards, from thier dividends which are taxed as income, to the fact they must distribute 90 percent, and to the fact that to be REIT they basically must derive thier income from land.

REITS are land ownership, which is not a regular business, not a subsector of stocks per se. Does small value have a special section of law devoted to it to enable it to be traded? Does large value, does mining, does health care? No, they are all general stocks, they are all businesses.

Ask yourself if you believe land ownership is just another business, ask yourself if the talmud, and basically all of human historical financial advice has it wrong in supposing that land ownership is UNIQUE from business ownership. If land ownership is a subset of business, the talmudstatement 1/3 land, 1/3 business, 1/3 cash is nonsensical, its should just be 2/3 business, 1/3 cash.

Go look at the REIT law, ask youself why does it even exist? If land ownership is a simply another business, why is the REIT structure neccessary? Answer: Land ownership is fundamentally different from stock/business ownership, and this fundamental nature requires a different legal structure.

Look at REIT correlation, they are low between both stocks and bonds. Why is this? Because REITS are a proxy for land ownership, and land ownership is simply a different animal than business ownership, and has been as far as I can tell throughout human history.

REITS are not simply another stock subsector, they are unique, requiring special law, special tax treatment, and showing the resultant low correlation with both stocks and bonds due to land ownership and the income derived thereof simply being different from business ownership.

A company can start out SG, switch to SV, then become a midcap, then become a LG then switch to a LV, then can even fall back down to a small cap again....... It does not feel very fundamental to me, feels like those are all subsectors of stock/business to me.

Whereas, a REIT, is going to start out a REIT, and end out a REIT(maybe some exceptions?). Why is this? Smells like a fundamental difference exists to me. A REIT is a REIT is a REIT. Land ownership is land ownership, and business ownership is business ownership.

Likewise, a company could start out say in one sector, and then morph over the years into another sector, might not happen often, but certainly could happen, I lack the knowledge to spit out examples or the frequency. A REIT is precluded by law from doing this, it must derive its income from land ownership.

In the end, it comes down to return above bonds, and likely around stocks, and low correlation with stocks and bonds. This behavoir makes sense, and one can expect it to continue. This behavor is excellant for a portfolio, making REITS a great class to have along with stocks and bonds.
Last edited by LH on Mon Nov 26, 2007 4:09 pm, edited 1 time in total.
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Postby CyberBob » Mon Nov 26, 2007 3:59 pm

sscritic wrote:...Extended Market Index?

That's a pretty popular index. I can't believe I forgot about it :oops:
Here are the figures for it and the 500 index too.

Image

Bob
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Postby LH » Mon Nov 26, 2007 4:06 pm

Thanks for the table Bob : )
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Postby thepommel » Mon Nov 26, 2007 4:24 pm

InvestingMom wrote:
zhiwiller wrote:
InvestingMom wrote:I have always thought that anyone investing in a REIT is in effect overweighting the market. I don't know why such special consideration is given to REITS as compared to other specialty funds.


Backtesting.

Excuse my ignorance...what does that mean?


I think, perhaps, what zhiller meant is that such special consideration is given to REITs because, in the past, REITs have had spectacular performance. People have thus given REITs special status due to "backtesting" or favoring that historical performance/correlations.

Zhiller can correct me if I'm off base.

Regards,

EDIT: Removed extra info not needed to answer the question.
Last edited by thepommel on Mon Nov 26, 2007 4:36 pm, edited 2 times in total.
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Postby tetractys » Mon Nov 26, 2007 4:26 pm

Thanks Bob!

Very much appreciate your contributions to the forum!

Just to mention it, it turns out my overall allocation to REITS is less than I had estimated. Along with %7 dedicated, I'm still under %9 total--I had been guesstimating up to %12. But that's a good thing for me because I'm actually more comfortable with %7-10.

Thanks again, Tet

PS. You aren't really a seraphim are you? That's a fake picture, right? :happy
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Double check

Postby IlliniSigEp » Mon Nov 26, 2007 4:36 pm

Not to be picky, but are you sure these percentages aren't from 9/30/2007 instead of 10/31/2007? I don't see the updated holding list on Vanguard yet. Am I looking at the wrong spot?

Thanks,
Dave

Example:
Value Index
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Re: Double check

Postby CyberBob » Mon Nov 26, 2007 4:53 pm

IlliniSigEp wrote:Not to be picky, but are you sure these percentages aren't from 9/30/2007 instead of 10/31/2007?

You're correct. The main Holdings pages say Month End Ten Largest Holdings as of 10/31/2007, but the holdings breakdowns showing the detail of all of the holdings (which are what I used) are as of 9/30/207, which makes sense since it's the end of a quarter.
I'll edit the original post to note the 9/30/2007 date.

Bob
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Postby SpringMan » Mon Nov 26, 2007 5:01 pm

Thanks Bob,
VNQ is my biggest loser this year, another almost 4% more today, Ouch.
Best,
Best Wishes, SpringMan
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Postby Valuethinker » Mon Nov 26, 2007 5:06 pm

InvestingMom wrote:
I have always thought that anyone investing in a REIT is in effect overweighting the market. I don't know why such special consideration is given to REITS as compared to other specialty funds.


REITs have slightly different characteristics than stocks:

- they are less risky than stocks (but will pay lower returns, long run)

- by law, they have to distribute pretty much all their profits to shareholders (90%) and so much of the return comes from the yield (hence the tax inefficiency if held outside a tax deferred fund) rather than the capital appreciation (which has been unusually strong the last few years)

- rents are (mostly) linked to inflation. So REITs tend to offer a degree of inflation protection (less than TIPS but more than stocks)

Now to be pedantic, the last point is true of *commercial real estate* but a REIT is a closed end fund that invests in commercial real estate, so therefore a REIT is more subject to stock market forces, and is more like a stock.

Empirically REITs are somewhat uncorrelated with stocks and bonds, so they make a good portfolio diversifier.

The problem with REITs is that the last 7 years or so, they have done better than ever before (but given some of that up in the last 10 months). So a sceptic would argue they are now overvalued relative to their historic valuations.

I would say long run a 10% exposure to REITs is not stupid, but many investors pursuing a stock/intl stock/ bond/ TIPS portfolio don't need it.

The only good reason I have heard is that many REITs are not publicly traded...and of course much of real estate ownership is not publicly held....but I fall back on advice that if you already own a home then you may already have enough real estate ownership.


And quite a bit of stuff has been published on that very point. Your home is a very undiversified, location specific bet on real estate.

I'm not sure the argument that much (most?) real estate is not in a REIT really stacks up. Many corporations are also private, and not directly ownable.
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Strategic Equity

Postby williamg » Mon Nov 26, 2007 5:26 pm

Fyi, for those holding Strategic Equity which is a managed fund somewhat more valuey than Extended Market but based on the same universe, the March report has REITS at 7.1%
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Postby Valuethinker » Mon Nov 26, 2007 5:51 pm

Buddtholomew wrote:I too am very interested in the percentage of REITS in the Extended Market Index (VEXMX). I am still making a decision on whether to invest 5% of my portfolio in the REIT fund (VGSIX) directly or purchase Small-Cap value to complement my existing VEXMX holdings. I may be happy with the percentage of REIT exposure with VEXMX and VISVX and forego holding VGSIX.


Very different asset classes:

REITs - relatively stable returns, mostly from income, should return more than bonds, less than stocks

SCV - more volatile than stocks as a whole (but not by as much as theory would predict) long term record of significant outperformance (I mean really quite serious, see Fama and French)

Now 5% is not a huge weighting in either. But 5% in SCV over the long run is likely to increase your wealth a lot more than REITs (but your ride will be rougher, potentially).
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15% of GDP

Postby Trev H » Mon Nov 26, 2007 6:20 pm

InvestingMom...

I think it was Rick that said once that REITs make up around 15% of the GDP.

If you held a portfolio with extreme SV tilts.

50% TSM
50% Small Value

Your total exposure to REITs would be 7.42% (per Bobs findings above).

SO if your portfolio was composed of 50% TSM, 50% Small Value you would still be shorting REITs by 7.58%

Trev H
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Postby InvestingMom » Mon Nov 26, 2007 6:23 pm

LH wrote:

Land is simply a valid asset class unto itself. It has a lot of history behind it, from the Talmud 1/3 land, 1/3 business, 1/3 reserve(cash) statement onward in history.

The reasons that REITS are different from other stocks, and not just another sector is:

The REIT law. They are simply fundamentally legally different from other stocks in many regards, from their dividends which are taxed as income, to the fact they must distribute 90 percent, and to the fact that to be REIT they basically must derive their income from land.

REITS are land ownership, which is not a regular business, not a subsector of stocks per se. Does small value have a special section of law devoted to it to enable it to be traded? Does large value, does mining, does health care? No, they are all general stocks, they are all businesses.

Ask yourself if you believe land ownership is just another business, ask yourself if the talmud, and basically all of human historical financial advice has it wrong in supposing that land ownership is UNIQUE from business ownership. If land ownership is a subset of business, the talmudstatement 1/3 land, 1/3 business, 1/3 cash is nonsensical, its should just be 2/3 business, 1/3 cash.

Go look at the REIT law, ask youself why does it even exist? If land ownership is a simply another business, why is the REIT structure neccessary? Answer: Land ownership is fundamentally different from stock/business ownership, and this fundamental nature requires a different legal structure.

Look at REIT correlation, they are low between both stocks and bonds. Why is this? Because REITS are a proxy for land ownership, and land ownership is simply a different animal than business ownership, and has been as far as I can tell throughout human history.

REITS are not simply another stock subsector, they are unique, requiring special law, special tax treatment, and showing the resultant low correlation with both stocks and bonds due to land ownership and the income derived thereof simply being different from business ownership.

A company can start out SG, switch to SV, then become a midcap, then become a LG then switch to a LV, then can even fall back down to a small cap again....... It does not feel very fundamental to me, feels like those are all subsectors of stock/business to me.

Whereas, a REIT, is going to start out a REIT, and end out a REIT(maybe some exceptions?). Why is this? Smells like a fundamental difference exists to me. A REIT is a REIT is a REIT. Land ownership is land ownership, and business ownership is business ownership.

Likewise, a company could start out say in one sector, and then morph over the years into another sector, might not happen often, but certainly could happen, I lack the knowledge to spit out examples or the frequency. A REIT is precluded by law from doing this, it must derive its income from land ownership.

In the end, it comes down to return above bonds, and likely around stocks, and low correlation with stocks and bonds. This behavoir makes sense, and one can expect it to continue. This behavor is excellant for a portfolio, making REITS a great class to have along with stocks and bonds.


Many good points. Some follow up comments:
    I am an atheist and so referring to the Talmud does not do much for me. But yes, from the beginning of time, land has given us a certain comfort level.
    I don't see why just because REITs are set up with special tax consequences that they should be considered differently. The bottom line is that these are corporations (okay trusts) that are in the business of making money. There are many industries that get special tax treatments and so I don't see this as any different.
    Every industry invests in different things. Why would land be different from say a commodity? Yes I know there differences, but when you really look at the essentials why is it different?
    When it comes to index funds I don't think you see style shifts. Not sure if that is a good enough reason to say REITS deserve their own category?
    I agree that REITS may be a good hedge, but I am not convinced that holding an index such as total stock market does not get you there.


Anyway, the bottom line is that it is a personal decision. I slice and dice in different ways and am not advocating that REITS are not a good investment, I just don't agree that they should be considered a separate asset class.
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Postby InvestingMom » Mon Nov 26, 2007 6:26 pm

gte834s wrote:I think, perhaps, what zhiller meant is that such special consideration is given to REITs because, in the past, REITs have had spectacular performance. People have thus given REITs special status due to "backtesting" or favoring that historical performance/correlations.

Zhiller can correct me if I'm off base.

Regards,


Ah ha. Sorry for being so slow.
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Postby InvestingMom » Mon Nov 26, 2007 6:53 pm

Valuethinker,
Well, I am at risk at belaboring the point, but I cannot help myself. I still cannot agree that REITS should be given a special classification. See comments below:

Valuethinker quotes:

REITs have slightly different characteristics than stocks:

- they are less risky than stocks (but will pay lower returns, long run)
This is true of many industries.
- by law, they have to distribute pretty much all their profits to shareholders (90%) and so much of the return comes from the yield (hence the tax inefficiency if held outside a tax deferred fund) rather than the capital appreciation (which has been unusually strong the last few years)

I don't agree that should be a reason to separately classify. There are many industries that receive special tax breaks (which then flow to the investor).

- rents are (mostly) linked to inflation. So REITs tend to offer a degree of inflation protection (less than TIPS but more than stocks)

Agree, but what about other commodities?

Now to be pedantic, the last point is true of *commercial real estate* but a REIT is a closed end fund that invests in commercial real estate, so therefore a REIT is more subject to stock market forces, and is more like a stock.
That is an excellent point. I never thought about the fact that all REITS are closed end funds...but if they are, then that does support my view. But then again, you can invest in an index fund that follows REITS and this is not closed end? I suppose the underlying investments are though.
Empirically REITs are somewhat uncorrelated with stocks and bonds, so they make a good portfolio diversifier.
Agreed. But many subclasses of industries are not correlated with the entire market.

The only good reason I have heard is that many REITs are not publicly traded...and of course much of real estate ownership is not publicly held....but I fall back on advice that if you already own a home then you may already have enough real estate ownership. And quite a bit of stuff has been published on that very point. Your home is a very undiversified, location specific bet on real estate.

Agreed but my home is a long term investment.

I'm not sure the argument that much (most?) real estate is not in a REIT really stacks up. Many corporations are also private, and not directly ownable.
Good point which supports my view.
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Postby SmallHi » Mon Nov 26, 2007 7:14 pm

Investing Mom --

Anyway, the bottom line is that it is a personal decision. I slice and dice in different ways and am not advocating that REITS are not a good investment, I just don't agree that they should be considered a separate asset class


Thats all there is too it. Whether or not REITS constitute a different asset class from equity is an interesting debate, but probably matters very little for the average investor.

There is a very strong pool of investors who prefer to invest according to the risk factors associated with the Fama/French 5 Factor Model, and avoid investments that don't fit neatly into the asset pricing model.

There are a lot of benefits to structuring a portfolio of global stocks and bonds with specific exposure to size and value characteristics (in greater than market proportions) in the equity markets and term and credit characteristics (in greater than t-bill proportions) in the fixed income markets.

Its relatively easy to asset locate, investment options are plentiful, tax efficient, and reasonably low cost, we have a plethora of historical data that aids us in estimating future risk premiums, you can target tracking error in a very controlled and specific way, and it helps you avoid the constant analysis/second guessing that comes with every possible alternative investment that becomes available with the inevitably strong past returns.

And, lets face it, if you cannot reach your goals with a risk tuned global size/value tilted (or not) balanced portfolio, all the diversifiers in the world aren't gonna save you.

I can tell you this much, I haven't enjoyed the park any less for having decided to avoid the REIT roller coaster!

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Postby bearcat98 » Mon Nov 26, 2007 7:26 pm

Investing Mom,

IMHO, there's a good reason that REITs should be considered differently based on their different tax treatment: their mandate to pass through their profits prevents them from reinvesting said profits in themselves. Therefore, they can't look forward to the kind of growth prospects that regular corporations can, and must (by law) be more "valuey" than regular corporations. Even if real estate is just another thing that a business can invest in (and there are lots of land-rich non-REIT corporations out there), REITs are limited to that sector, and are pretty much limited to being value companies; that can't be said for regular corporations.

McDonald's as a regular corporation, for example, could decide not to distribute dividends and to direct all of its profits to land acquisition for future restaurants (or start building microchips). Presumably, the share price would reflect the anticipated growth from such a venture, with high P/E and P/B ratios, and so forth. If McDonald's converted into a REIT, its ability to grow would be limited by its duty to pass profits on to shareholders. Therefore, it would be a more valuey stock.

So, you say, REITs are just another kind of value stock. Sure, say I, but one sufficiently different that one might want to treat it differently in an asset allocation from other value stocks (it's valuey because it's required to be rather than because of any distress in the business; it has little prospects for being more growthy). Then again, one might not (I don't, but that may change in the future).
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Postby Alex Frakt » Mon Nov 26, 2007 7:51 pm

InvestingMom wrote:...
I don't see why just because REITs are set up with special tax consequences that they should be considered differently. The bottom line is that these are corporations (okay trusts) that are in the business of making money. There are many industries that get special tax treatments and so I don't see this as any different.
Every industry invests in different things. Why would land be different from say a commodity? Yes I know there differences, but when you really look at the essentials why is it different?

The legal requirements for REITs do make them a fundamentally different animal from other businesses since they cannot use their internal cash flow to "grow" the business.

Any stock price is a function of the current value of all of the company's expected future earnings (with perhaps some additional speculative factors that we can generally ignore since they average out over the long term). This in turn depends on the current earnings, which is known, and an estimate of the company's future rate of growth. Since even small changes in estimates of the future rate of growth can have a massive effect on the calculated current value and thus stock prices, holding stocks is a very risky endeavor. That in turn leads to high expected returns since people expect to get paid for taking on this risk.

What makes REITs unusual is that you can easily estimate their expected return by just looking at the current yield. This is because a REIT's return is made up of the yield plus the return on the underlying value of the land it holds - which is equal to inflation. You see REITs just can't grow in the conventional sense: they don't produce anything, so productivity gains won't help; they can't come up with new products or services, since they can only own land; and they aren't even allowed to use their profits to buy more land. Since you don't have to worry about estimating the future rate of growth, REITs should be much less risky than normal businesses. Less risk = lower expected return.

This is not to say REITs are a bad buy (at least at times when their yield is reasonable, which I believe is currently the case). They do have a positive return, they offer some inflation protection if you are able to hold through entire business cycles, and their low correlation to both stocks and bonds addition can increase the risk-adjusted returns of a portfolio.

Also for those in retirement, REITs bought at the right price can perhaps fill some of the need for a regular income stream that was once met by highly regulated utilities.
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Re: REIT Percentages Revealed!

Postby EmergDoc » Mon Nov 26, 2007 9:00 pm

CyberBob wrote:
And since I thought the results may be of interest to other people, here are the numbers:
Image

Bob :)


I can't see your table as it accesses a "personal page" which is blocked by the military firewall. Can you summarize the results in a brief paragraph?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Postby Peter Foley » Mon Nov 26, 2007 9:30 pm

I have always approached REITs as a proxy for another asset class in a very broad sense: real estate as opposed to equities, bonds, and commodities. Just as it is not practical for many individuals to physically own gold (or pork bellies for that matter) neither is it practical for many to own and manage real estate. The market has created proxies - ETFs and REITs in recognition.

One of my early investments was a rental property. Because with a rental I have a 5% exposure to real estate, REITs have never been of interest to me.

Am I oversimplifying? (I do realize there are liquidity implications.)
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Postby sscritic » Mon Nov 26, 2007 10:03 pm

CyberBob wrote:
sscritic wrote:...Extended Market Index?

That's a pretty popular index. I can't believe I forgot about it :oops:
Here are the figures for it and the 500 index too.

Image

Bob


Bob:

I just went to EDGAR and looked at the lastest N-Q (3/31/07). I copy/pasted the Financials from Extended Market Index into Excel, used Find to pick out anything with the letters REIT in it, and added the asset values. As of 3/31/07, REITs represented 6.88% of Extended Market. Note the drop from March 31 to September 30, a result I suspect of the decline of the REIT relative to the rest of the market.

P.S. It would be nice if Vanguard had a single page view of holdings on the web site. The current holdings for Extended Market run 65 pages when only 50 are shown per page, which is why I went to EDGAR.
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Postby stratton » Mon Nov 26, 2007 10:12 pm

EmergDoc wrote:I can't see your table as it accesses a "personal page" which is blocked by the military firewall. Can you summarize the results in a brief paragraph?

Code: Select all
Fund              Symbol    REIT %
==================================
LC Growth         VIGRX      0.66
LC Blend          VLACX      1.53
LC Value          VIVAX      2.52
MC Growth         VMGIX      0.28
MC Blend          VIMSX      5.81
MC Value          VMVIX     11.19
SC Growth         VISGX      0.73
SC Blend          NAESX      6.08
SC Value          VISVX     12.31
TSM               VTSMX      2.53
S&P 500           VFINX      1.21
Extended Mkt      VEXMX      5.37


EmergDoc, may you have very few "customers."

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Postby EmergDoc » Mon Nov 26, 2007 11:22 pm

stratton wrote:EmergDoc, may you have very few "customers."


Thanks for the table. You'll be pleased to know that the number of "customers" has dramatically decreased the last few months. I don't know why this isn't trumpeted more in the mainstream media, and I don't know how much of it is due to Iran finally slowing down the flow of arms across its border, but I can tell you first hand that fewer of our soldiers are getting blown to bits in the last few months. The team located at my base that is responsible for air-evaccing out the most critically wounded has been without a mission for a month. They're bored out of their gourd!
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Postby Valuethinker » Tue Nov 27, 2007 3:59 am

EmergDoc wrote:
stratton wrote:EmergDoc, may you have very few "customers."


Thanks for the table. You'll be pleased to know that the number of "customers" has dramatically decreased the last few months. I don't know why this isn't trumpeted more in the mainstream media, and I don't know how much of it is due to Iran finally slowing down the flow of arms across its border, but I can tell you first hand that fewer of our soldiers are getting blown to bits in the last few months. The team located at my base that is responsible for air-evaccing out the most critically wounded has been without a mission for a month. They're bored out of their gourd!


I'd really have to go into politics to discuss this.

Let me put it this way. The Sunnis and the Shias are arming for the next round, when the US is out of the way. The bits that are Sunni dominated, the Sunni tribal militias are the de facto rulers, having gotten rid of the Al Quaida or marginalised them. The bits that are Shia dominated, ditto-- Motaqa Al Sadr has been keeping his head down.

If there is a political reconciliation, then stability is possible. But right now, both sides are lying low for the gotterdammerung.
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Apartment REITs and TIPs

Postby docneil88 » Tue Nov 27, 2007 4:50 am

Apartment REITs and TIPs

TIPS are based on the US Consumer Price index, which has around a 40% weighting to US residential rental rates (source: http://www.bls.gov/cpi/cpifact5.htm ). So, there is some indirect overlap between TIPS and funds with residential REIT exposure. BTW, Vanguard's REIT index ETF (VNQ) has an 18.4% weighting in apartment REITs (source: http://www.etfconnect.com/select/fundpa ... FID=136463 ). Best, Neil
Last edited by docneil88 on Tue Nov 27, 2007 4:59 am, edited 1 time in total.
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Re: Apartment REITs and TIPs

Postby Valuethinker » Tue Nov 27, 2007 4:58 am

docneil88 wrote:TIPS are based on the US Consumer Price index, which has around a 40% weighting to US residential rental rates (source: http://www.bls.gov/cpi/cpifact5.htm ). So, there is some overlap between TIPS and funds with residential REIT exposure. For example, REIT index funds have around a 20% weighting to apartment REITs. Best, Neil


I think that is all housing related expenditure. So not just rents but utilities, property taxes as well. Furniture. Hotel rates. Housekeeping supplies. Lawn and garden care.

Shelter as a whole is 32%. Rent is 25%. The balance is other items as above (eg utilities: 5%, furnishings etc. 4%).

http://www.bls.gov/cpi/cpiri2006.pdf
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Re: Apartment REITs and TIPs

Postby docneil88 » Tue Nov 27, 2007 5:14 am

Valuethinker wrote:Shelter as a whole is 32% [of CPI]. Rent is 25%. The balance is other items as above (eg utilities: 5%, furnishings etc. 4%).

http://www.bls.gov/cpi/cpiri2006.pdf


Thanks Valuethinker for that excellent link. In the section titled "Special Aggregate Indexes," it says that for CPI-U[rban] the weight for "rent of shelter" is 32.4%, pretty much halfway between our earlier estimates. Best, Neil
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Postby gatorman » Tue Nov 27, 2007 10:33 am

CyberBob wrote:
sscritic wrote:...Extended Market Index?

That's a pretty popular index. I can't believe I forgot about it :oops:
Here are the figures for it and the 500 index too.

Image

Bob

Bob- Is there a way you could rerun your script to get a quick read on the exposure of the equally weighted S&P 500 (RSP) to REITs? Alternatively, and you probably already know the answer to this, how many REIT stocks does the 500 contain?
Thanks,
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Postby CyberBob » Tue Nov 27, 2007 12:32 pm

gatorman wrote:Is there a way you could rerun your script to get a quick read on the exposure of the equally weighted S&P 500 (RSP) to REITs?

Unfortunately, not easily, as the holdings for RSP don't specifically identify REIT's as REIT's, but rather only as 'Financials'.
gatorman wrote:...how many REIT stocks does the 500 contain?

The Vanguard 500 Index Fund holds 14 REIT's:
  1. Simon Property Group, Inc. REIT
  2. ProLogis REIT
  3. Vornado Realty Trust REIT
  4. Archstone-Smith Trust REIT
  5. General Growth Properties Inc. REIT
  6. Boston Properties, Inc. REIT
  7. Equity Residential REIT
  8. Host Hotels & Resorts Inc. REIT
  9. Kimco Realty Corp. REIT
  10. Public Storage, Inc. REIT
  11. Avalonbay Communities, Inc. REIT
  12. Plum Creek Timber Co. Inc. REIT
  13. Developers Diversified Realty Corp. REIT
  14. Apartment Investment & Management Co. Class A REIT


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Postby etc06 » Tue Nov 27, 2007 1:29 pm

Thanks Bob for taking the time to post this information for everyone.

For those that are interested in why REITs should be considered differently than say, commodities, energy, or health care, Vanguard has a really nice research paper on their site.

Here's a link:
https://institutional.vanguard.com/VGApp/iip/Research?Path=PUBIR&File=InvResRealEstate.jsp&FW_Activity=ArticleDetailActivity&FW_Event=articleDetail&IIP_INF=ZZInvResRealEstate.jsp#
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Postby SurgPath » Tue Nov 27, 2007 3:51 pm

etc06 wrote:Thanks Bob for taking the time to post this information for everyone.

For those that are interested in why REITs should be considered differently than say, commodities, energy, or health care, Vanguard has a really nice research paper on their site.

Here's a link:
https://institutional.vanguard.com/VGApp/iip/Research?Path=PUBIR&File=InvResRealEstate.jsp&FW_Activity=ArticleDetailActivity&FW_Event=articleDetail&IIP_INF=ZZInvResRealEstate.jsp#


etc06
great paper, thanks for posting the link.
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Postby EmergDoc » Tue Nov 27, 2007 10:02 pm

Valuethinker wrote: right now, both sides are lying low for the gotterdammerung.


Interesting theory...I'm curious as to the source of your information. If they want to lie low waiting for the coalition forces to leave, they'll likely be lying low long enough for the Iraqis to see some prosperity and realize that it is better to cooperate in the long run.

But if they want to lie low just so we'll leave, I'm all for it. I hope they do it more.
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Postby grok87 » Tue Nov 27, 2007 10:45 pm

InvestingMom wrote:
I'm not sure the argument that much (most?) real estate is not in a REIT really stacks up. Many corporations are also private, and not directly ownable.
Good point which supports my view.


I'm one of those folks who view Real Estate as a separate asset class. Personally I used the TIAA Real Estate Annuity (8% of my porfolio) and REITs (4%) for a total porfolio allocation of 12%. And I agree that overweighting REITs relative to their market cap weight in TSM makes sense because Real Estate is such a big piece of the economy. I think the same argument applies to small cap stocks- i.e. one should overweight them because a smaller percentage of small companies are publicly traded than large companies- i.e. to make up numbers, maybe half of large companies are publicly traded, but perhaps only 20% of small companies are publicly traded-if anyone has the actual stats I'd love to see them...

I'm sure most folks have seen this before, but David Swensen in Unconventional Success recommends the following portfolio for long term investing:

30% US Equity
20% International Equity
20% Real Estate
15% Treasuries
15% TIPs

Let me give another perspective why I think it is rational to overweight REITs, while I would not overweight, say, retailers...

Let's say you have 10% REITs. REITs are only a small part of TSM. Let's say REITs become unloved and underperform TSM for a long while and become cheap (say they trade at a big discount to the Net asset value of their real estate holding). What will REIT managers do? Well logically they will: 1) Get taken private resulting in gains for investors, 2) sell off their real estate since this will cause a net increase in the REIT market cap, since the cash they get is above the valuation placed by the market on the real estate holdings inside the REIT.

cheers
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Postby Valuethinker » Wed Nov 28, 2007 4:44 am

EmergDoc wrote:
Valuethinker wrote: right now, both sides are lying low for the gotterdammerung.


Interesting theory...I'm curious as to the source of your information. If they want to lie low waiting for the coalition forces to leave, they'll likely be lying low long enough for the Iraqis to see some prosperity and realize that it is better to cooperate in the long run.

But if they want to lie low just so we'll leave, I'm all for it. I hope they do it more.


It's finally balanced.

The problem is there isn't a coming together at the political level. The Shia militias are still out there, and of course the Sunnis are much strengthened in their provinces. Motaqa Al Sadr in particular has been lying relatively low.

But as long as the politicians (who are really just the mouthpieces of the militias) aren't coming together and actually trying to create national unity, there is nothing to prevent the 2 sides going at each other, again, once there is not enough external security to prevent it.

It reminds any observer I've read of the Lebanese civil war, in a sense, in one of its innumerable cease fires.
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Postby Valuethinker » Wed Nov 28, 2007 4:49 am

grok87 wrote:
I'm sure most folks have seen this before, but David Swensen in Unconventional Success recommends the following portfolio for long term investing:

30% US Equity
20% International Equity
20% Real Estate
15% Treasuries
15% TIPs

Let me give another perspective why I think it is rational to overweight REITs, while I would not overweight, say, retailers...


One thing that worries me about this Swensen asset allocation was that it was made in 2002, say? (if the book was published in 2003).

I doubt Swensen, or anyone, anticipated what REITs would do 2002-2006, tracking double digit returns in the commercial property market in each of those years. And we know that, after sub prime, the next most vulnerable area of lending is commercial property lending.

One could argue as a long term investor, one doesn't care. But I would hate to be 20% in REITs through a commercial property crash.

I wonder what Swensen would say, now?
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Postby stratton » Wed Nov 28, 2007 11:08 am

Valuethinker wrote:One could argue as a long term investor, one doesn't care. But I would hate to be 20% in REITs through a commercial property crash.

I wonder what Swensen would say, now?

Swensen as an educator probably has access to TIAA Real Estate Account which is direct real estate ownership so volatility ought to be lower than REITs. So 20% wouldn't be so bad if you did 10% TIAA RE, 5% US REIT and 5% Intl REITs.

Commercial Real Estate Faring Much Better Than Its Residential Sibling

The article mentions several property indexes.

Data from Standard & Poor's S&P/GRA Commercial Real Estate Indexes
Code: Select all
Property Type    July     Aug   thru Aug
========================================
Office                   2.3 %   13.1 %
apartment        2.2 %   1.2     -1.3
warehouse                        10+
retail                  -0.7     10+

The National Composite index was up 1.1% for the month and 6.2% for the 12-month period. It's one-year performance has declined over the past two months from 6.6% in June. David Blitzer, Managing Director and Chairman of the Index Committee at S&P, noted that that commercial property price indexes were continuing their deceleration from an August 2006 peak.

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