Which real estate index?

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Topic Author
Ocean77
Posts: 59
Joined: Wed Oct 23, 2019 3:20 pm

Which real estate index?

Post by Ocean77 » Fri Nov 15, 2019 1:19 pm

I'm looking to put a portion of my portfolio into a US real estate index fund. I thought this would be simple enough, but I found that there are two different indexes. The funds I was looked at were:
- FSRNX (Fidelity Real Estate Index Fund) which tracks the Dow Jones Real Estate Index
- FREL (Fidelity MSCI Real Estate Index) which tracks the MSCI Real Estate Index

I wonder why there are two indexes for the same thing, and which one to use. I tried to find information on each on the respective websites (Dow Jones, MSCI). It looks the composition is a bit different, which puzzles me. Shouldn't an index just be cap weighted? Maybe one index may include smaller cap companies than the other, but at least the top names should be the same? It looks the top name in the MSCI Index is American Tower (AMT), with 7.48% weight. The Dow Jones index does not even have this company at all!

Any thoughts?

retired@50
Posts: 683
Joined: Tue Oct 01, 2019 2:36 pm

Re: Which real estate index?

Post by retired@50 » Fri Nov 15, 2019 1:43 pm

Ocean77 wrote:
Fri Nov 15, 2019 1:19 pm
I'm looking to put a portion of my portfolio into a US real estate index fund. I thought this would be simple enough, but I found that there are two different indexes. The funds I was looked at were:
- FSRNX (Fidelity Real Estate Index Fund) which tracks the Dow Jones Real Estate Index
- FREL (Fidelity MSCI Real Estate Index) which tracks the MSCI Real Estate Index

I wonder why there are two indexes for the same thing, and which one to use. I tried to find information on each on the respective websites (Dow Jones, MSCI). It looks the composition is a bit different, which puzzles me. Shouldn't an index just be cap weighted? Maybe one index may include smaller cap companies than the other, but at least the top names should be the same? It looks the top name in the MSCI Index is American Tower (AMT), with 7.48% weight. The Dow Jones index does not even have this company at all!

Any thoughts?
I think the multitude of indices is just a business opportunity for the index providers. Licensing an index to a mutual fund or ETF brings in money to the index provider, so it's no surprise that there are competing offerings. You have reviewed some of the holdings based on your post, so if having a concentrated position in American Tower (cell phone towers, I believe) disturbs you, then avoid that index. You may also look at expense ratios, turnover statistics, and tracking error to find an index that suits your investing style. I use the Vanguard VGSLX fund that tracks "MSCI US Investable Market Real Estate 25/50 Index" for what it's worth...

Regards,

Topic Author
Ocean77
Posts: 59
Joined: Wed Oct 23, 2019 3:20 pm

Re: Which real estate index?

Post by Ocean77 » Fri Nov 15, 2019 3:08 pm

retired@50 wrote:
Fri Nov 15, 2019 1:43 pm
Ocean77 wrote:
Fri Nov 15, 2019 1:19 pm
I'm looking to put a portion of my portfolio into a US real estate index fund. I thought this would be simple enough, but I found that there are two different indexes. The funds I was looked at were:
- FSRNX (Fidelity Real Estate Index Fund) which tracks the Dow Jones Real Estate Index
- FREL (Fidelity MSCI Real Estate Index) which tracks the MSCI Real Estate Index

I wonder why there are two indexes for the same thing, and which one to use. I tried to find information on each on the respective websites (Dow Jones, MSCI). It looks the composition is a bit different, which puzzles me. Shouldn't an index just be cap weighted? Maybe one index may include smaller cap companies than the other, but at least the top names should be the same? It looks the top name in the MSCI Index is American Tower (AMT), with 7.48% weight. The Dow Jones index does not even have this company at all!

Any thoughts?
I think the multitude of indices is just a business opportunity for the index providers. Licensing an index to a mutual fund or ETF brings in money to the index provider, so it's no surprise that there are competing offerings. You have reviewed some of the holdings based on your post, so if having a concentrated position in American Tower (cell phone towers, I believe) disturbs you, then avoid that index. You may also look at expense ratios, turnover statistics, and tracking error to find an index that suits your investing style. I use the Vanguard VGSLX fund that tracks "MSCI US Investable Market Real Estate 25/50 Index" for what it's worth...

Regards,
Makes sense, thank you! The past returns from either index were quite similar. In the long run it may not matter much which one to pick, so I may as well go by the criteria you noted.

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Phineas J. Whoopee
Posts: 8825
Joined: Sun Dec 18, 2011 6:18 pm

Re: Which real estate index?

Post by Phineas J. Whoopee » Fri Nov 15, 2019 3:16 pm

There are more equity indexes than there are equity funds; and more equity indexes than there are in the tradable individual stock investment universe. As noted upthread the business of defining and licensing indexes is a for-profit one. You pays your money and you takes your choice.
PJW

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