TIAA real estate (QREARX) versus Vanguard REIT index (

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hariom
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TIAA real estate (QREARX) versus Vanguard REIT index (

Post by hariom » Sun Jan 07, 2018 8:37 pm

Total Return % (01/05/2018) 1-Day 1-Week 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year 15-Year
VGSIX 0.11 -2.25 -1.34 -1.56 -2.25 0.20 3.62 8.24 8.11 10.48
QREARX -0.08 -0.07 0.36 1.14 -0.09 4.17 5.82 7.83 2.50 5.67

Based on my reading on prior posts and on the morningstar forum, TIAA Real estate (QREARX) is generally accepted as a distinct asset class (direct ownership of commercial real estate), good diversifier, and a reasonable holding for up to 10% of the portfolio for those with access.

The above table compares returns of QREARX and the Vanguard REIT index fund (investor shares, VGSIX)), obtained from Morningstar. Long term (5 years and greater) QREARX seems to lag quite significantly to VGSIX.

Why the significant lag, has something changed with this holding? Are others still using it for the real estate component of their portfolio?

livesoft
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by livesoft » Sun Jan 07, 2018 8:39 pm

You gotta read up more about TIAA Real Estate. See this thread for a start:
viewtopic.php?t=123075
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Valuethinker
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by Valuethinker » Mon Jan 08, 2018 6:02 pm

hariom wrote:
Sun Jan 07, 2018 8:37 pm
Total Return % (01/05/2018) 1-Day 1-Week 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year 15-Year
VGSIX 0.11 -2.25 -1.34 -1.56 -2.25 0.20 3.62 8.24 8.11 10.48
QREARX -0.08 -0.07 0.36 1.14 -0.09 4.17 5.82 7.83 2.50 5.67

Based on my reading on prior posts and on the morningstar forum, TIAA Real estate (QREARX) is generally accepted as a distinct asset class (direct ownership of commercial real estate), good diversifier, and a reasonable holding for up to 10% of the portfolio for those with access.

The above table compares returns of QREARX and the Vanguard REIT index fund (investor shares, VGSIX)), obtained from Morningstar. Long term (5 years and greater) QREARX seems to lag quite significantly to VGSIX.

Why the significant lag, has something changed with this holding? Are others still using it for the real estate component of their portfolio?
The REITs in the VG fund generally have much higher levels of gearing. From memory the TIAA fund limits itself to 30% gearing.

Thus, in a rising market for real estate assets, the returns will be higher in the VG fund.

The VG fund will also tend to be much more volatile. And behave much more like equity markets as a whole, compared to the TIAA fund.

There is what I call the "TIAA RE headbangers" who go all in for 20%+ of their portfolios in this fund. That, I think, is excessive concentration of risk on 1). one asset class 2). one asset manager 3). one portfolio of buildings.

quaternion
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by quaternion » Mon Jan 08, 2018 8:18 pm

Valuethinker wrote:
Mon Jan 08, 2018 6:02 pm
From memory the TIAA fund limits itself to 30% gearing.
Actually, TIAA real estate holds about equal quantities of mortgage debt and bonds (presumably for liquidity), so it is effectively unleveraged.

student
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by student » Mon Jan 08, 2018 9:51 pm

In general, I am not a big fan of TIAA real estate. To me, it is similar to investing in one real estate company.

tibbitts
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by tibbitts » Mon Jan 08, 2018 11:18 pm

I wish I understood the fund better, but I do hold it. It seems like discussions on Morningstar are very focused on Greenstreet, but there isn't as much discussion of the income aspect of the fund - everybody seems focused on appreciation or depreciation of properties, and the direction of commercial real estate prices in general.

Valuethinker
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by Valuethinker » Tue Jan 09, 2018 4:56 am

tibbitts wrote:
Mon Jan 08, 2018 11:18 pm
I wish I understood the fund better, but I do hold it. It seems like discussions on Morningstar are very focused on Greenstreet, but there isn't as much discussion of the income aspect of the fund - everybody seems focused on appreciation or depreciation of properties, and the direction of commercial real estate prices in general.
Swensen has a couple of paragraphs on it, I believe. It's really a private REIT, but one that is organized to the benefit of investors, not just managers. One has to understand the liquidity issues for investors - how you can get your money out.

In the long run you should get similar returns to Vanguard REIT index fund, but with less volatility. If you are drawing down from your portfolio, the income aspect is nice-- you don't need to sell anything, just draw an income out.

Income of properties is driven by cap rate (capitalization rate) = Net Operating Income/ Value of buildings

With low interest rates, property values have been rising and cap rates have been falling. That is what drives the income of the TIAA RE fund (or any RE fund). Newly acquired buildings are going to have a higher cost and a lower cap rate. However existing buildings keep paying the rent, so in dollar terms your income from your holding should stay pretty stable, and rise a bit with inflation over time.

The fact that leases tend to rise with inflation, over time, is the main reason why RE is a good inflation hedge. The other is that although buildings depreciate and need to be replaced (typically on a 30 year cycle for commercial RE) land does tend to rise with inflation as well.

oslocal
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by oslocal » Tue Jan 16, 2018 3:38 pm

We are eligible to open the required type of TIAA account (parents of my spouse are public teachers) that allows us to invest in the TREA, and able to put a bit less than 10% of our portfolio there ($30k of Roth IRA money). Other than that, we are using Vanguard.
Is this worth the hassle if we're otherwise not using any TIAA products?

It seems that most people who use this account already have a 403b with TIAA.

AndroAsc
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by AndroAsc » Sun Feb 04, 2018 11:27 pm

I too have both these funds, and while I know TIAA RE is a special type of fund, the gap between the 10-yr returns between TIAA RE and Vanguard REITs is quite alarming, especially since they should be the same asset type?!

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House Blend
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Re: TIAA real estate (QREARX) versus Vanguard REIT index (

Post by House Blend » Mon Feb 05, 2018 12:36 pm

^Sure, the returns of REITs can trounce TREA. The question is whether the low volatility of TREA makes it worthwhile for you.

Also, I'm not sure it's fair to consider them the same asset type. Setting aside the differences in leverage, and setting aside the fact that TREA occasionally has small positions in REITs, this is like ignoring the difference between investing in gold and investing in gold mining companies.

Anyone contemplating an investment in TREA should read the rather extensive FAQ:
https://www.tiaa.org/public/pdf/performance/REA_FAQ.pdf

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