What is the average historic P/E for US REIT Index?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
db55
Posts: 40
Joined: Fri Mar 19, 2010 5:15 pm

What is the average historic P/E for US REIT Index?

Post by db55 »

Hi,
I'm trying to understand the average P/E over many year for the US REIT Index. Morningstar is showing the P/E for Vanguard Real Estate Index Admiral (VGSLX) to be 40.89. I assume this is the forward-looking P/E. I'm guessing this is significantly higher than the historic forward-looking REIT Index P/E. But by how much?

Or can someone point me to the data. I haven't been able to find it online.

Because of the low interest rates, all equity indexes are trading at P/E above their historic averages. I'm trying to quantify that.

Thanks!
pkcrafter
Posts: 14826
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: What is the average historic P/E for US REIT Index?

Post by pkcrafter »

Here is some information--

https://www.macrotrends.net/stocks/char ... e/pe-ratio

Problem with finding P/E is probably due to the fact that there are two kinds of REITS

https://www.fool.com/investing/general/ ... -reit.aspx

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
MotoTrojan
Posts: 11056
Joined: Wed Feb 01, 2017 8:39 pm

Re: What is the average historic P/E for US REIT Index?

Post by MotoTrojan »

For a REIT I think the yield may be a more meaningful metric.

https://www.fool.com/millionacres/real- ... reasuries/
not4me
Posts: 956
Joined: Thu May 25, 2017 3:08 pm

Re: What is the average historic P/E for US REIT Index?

Post by not4me »

It isn't uncommon for sites such as Morningstar to report data such as p/e for reits, because that is their format. However, it isn't meaningful. Reits use "FFO" (funds from operations) or AFFO (adjusted ffo), etc. Accounting rules for reit distribution make this preferable for understanding reits. While FFO doesn't equate to E, some will use that for rough comparison, but it really isn't a useful compare.

You might post how you anticipate using that data to get ideas on how to accomplish your objective.
User avatar
JoMoney
Posts: 11355
Joined: Tue Jul 23, 2013 5:31 am

Re: What is the average historic P/E for US REIT Index?

Post by JoMoney »

If you look at old Vanguard fund annual reports, you can find things like P/E reported under "Portfolio Characteristics"
Unfortunately they stopped doing this in recent reports, personally I'm very upset with them for dropping it. Likely unrelated but they stopped doing it right after John Bogle passed.

At any rate, here's a Vanguard REIT fund annual report, showing as of 31-Jan-2016 their REIT Index fund had a P/E of 35.3
https://www.sec.gov/Archives/edgar/data ... _final.htm

And here's one as pf 31-Jan-2005 reporting a P/E of 32.0
https://www.sec.gov/Archives/edgar/data ... rmncsr.htm

other older reports can be found at the SEC EDGAR site
https://www.sec.gov/edgar/searchedgar/mutualsearch.html
https://www.sec.gov/edgar/browse/?CIK=0000734383

Look for form N-CSR (annual report post 2003, I think prior to that the form was N30 or N-30 ... keep in mind that Vanguard's REIT index fund has changed the index it tracks at some points, and they moved what fund group it's under so it was on the annual report of a different fund group further back in time)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
alex_686
Posts: 8301
Joined: Mon Feb 09, 2015 2:39 pm

Re: What is the average historic P/E for US REIT Index?

Post by alex_686 »

Why do you want to know? Average P/E ratios are worthless, statistically and economically speaking.

There is not a correct number according to theory. The numbers don’t mean revert.

P/E ratios combine historical earnings, expected future growth, long term interest rates, and a equity risk premium.

We can estimate these values for a given economic period, but from time to time these values shift. Including numbers across secular periods will cause garbage data.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
db55
Posts: 40
Joined: Fri Mar 19, 2010 5:15 pm

Re: What is the average historic P/E for US REIT Index?

Post by db55 »

Thanks to all those replying thus far. I have looked at the data and websites that you have provided.

I asked the original question because I'm trying to assess how fairly valued REITs are relative to other equities. In the past I have skewed my investments (a little, not a lot) towards more historically fairly valued assets classes and away from the more historically overvalued assets (expecting eventual regression to the mean). Today, virtually all assets are historically overvalued because of the extremely low interest rates - stocks, bonds, REITs - all of them. I'm trying to quantify the comparison. Yes, this is slightly timing the market.
alex_686
Posts: 8301
Joined: Mon Feb 09, 2015 2:39 pm

Re: What is the average historic P/E for US REIT Index?

Post by alex_686 »

db55 wrote: Wed May 05, 2021 2:59 am I asked the original question because I'm trying to assess how fairly valued REITs are relative to other equities. In the past I have skewed my investments (a little, not a lot) towards more historically fairly valued assets classes and away from the more historically overvalued assets (expecting eventual regression to the mean). Today, virtually all assets are historically overvalued because of the extremely low interest rates - stocks, bonds, REITs - all of them. I'm trying to quantify the comparison. Yes, this is slightly timing the market.
P/E ratios do not regress back to the mean. Historically this is true. Theoretically there is no reason why they should. You can't use P/E values by themselves to determine fair value.

P/E can only be used to determine value by measuring it against something else. See the Fed Model or the Yardeni Model as examples.

https://en.wikipedia.org/wiki/Fed_model

P/E ratios pack in expected growth and risk. A P/E ratio may be low not because it is undervalued but because it is highly risky.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
db55
Posts: 40
Joined: Fri Mar 19, 2010 5:15 pm

Re: What is the average historic P/E for US REIT Index?

Post by db55 »

alex_686 wrote: Wed May 05, 2021 8:31 am
db55 wrote: Wed May 05, 2021 2:59 am I asked the original question because I'm trying to assess how fairly valued REITs are relative to other equities. In the past I have skewed my investments (a little, not a lot) towards more historically fairly valued assets classes and away from the more historically overvalued assets (expecting eventual regression to the mean). Today, virtually all assets are historically overvalued because of the extremely low interest rates - stocks, bonds, REITs - all of them. I'm trying to quantify the comparison. Yes, this is slightly timing the market.
P/E ratios do not regress back to the mean. Historically this is true. Theoretically there is no reason why they should. You can't use P/E values by themselves to determine fair value.

P/E can only be used to determine value by measuring it against something else. See the Fed Model or the Yardeni Model as examples.

https://en.wikipedia.org/wiki/Fed_model

P/E ratios pack in expected growth and risk. A P/E ratio may be low not because it is undervalued but because it is highly risky.
I don't see how you conclude that P/E ratios don't regress to the mean over long periods of time. The wiki page that you quote above shows Shiller's graph of historic CAPE regressing to the mean several times over history. I agree that today's P/E values are high because they are being compared to today's extremely low interest rates. I also agree that what is "fair value" needs to be determined by comparing various investment options. But I do not believe that today's very low interest rates are going to last forever. I expect that today's high P/Es and low interest rates should eventually regress to their means. If that happens, U.S. large-cap stock and bond returns over the next 10+ years should be significantly lower than historic returns. I also believe that certain investments are more overvalued today than others (e.g. large tech stocks like Tesla that are priced to near perfection). Some may take the view of "this time is different" and that these high stock and bond valuations are forever -I don't. Hence I look for more conservatively priced assets that in my opinion have a larger cushion with decent upside.
alex_686
Posts: 8301
Joined: Mon Feb 09, 2015 2:39 pm

Re: What is the average historic P/E for US REIT Index?

Post by alex_686 »

Short answer, the mean for P/E is time varying.
db55 wrote: Wed May 05, 2021 4:58 pm I don't see how you conclude that P/E ratios don't regress to the mean over long periods of time.
Math. Hurst Jump Diffusion is the most common technique.
db55 wrote: Wed May 05, 2021 4:58 pm The wiki page that you quote above shows Shiller's graph of historic CAPE regressing to the mean several times over history.
Which chart are you referring to? This one?
https://en.wikipedia.org/wiki/Fed_model ... id2012.png
db55 wrote: Wed May 05, 2021 4:58 pm I agree that today's P/E values are high because they are being compared to today's extremely low interest rates. I also agree that what is "fair value" needs to be determined by comparing various investment options. But I do not believe that today's very low interest rates are going to last forever. I expect that today's high P/Es and low interest rates should eventually regress to their means. If that happens, U.S. large-cap stock and bond returns over the next 10+ years should be significantly lower than historic returns. I also believe that certain investments are more overvalued today than others (e.g. large tech stocks like Tesla that are priced to near perfection). Some may take the view of "this time is different" and that these high stock and bond valuations are forever -I don't. Hence I look for more conservatively priced assets that in my opinion have a larger cushion with decent upside.
I think you are making a common mistake. People take a large time series and find a historical average. They then see that the line sometimes is above the average and sometimes below the average, thus concluding that there is mean reversion going on. This is not true. You are saying that the historical average is the historical average.

If it were mean reverting then the P/E ratios should not be a random walk. If it were above average then you should more down movements than up movements. If below, than more up movements. You don't see that in the data.

Rather, you see the P/E ratio gravitate to a mean over a period of time. Then there is a jump - hence "Jump Diffusion" - to a new mean.

This should make sense. P/E ratios are not some natural law. Rather they reflect the demand for investments, supply of capital, risk tolerance of investors, productivity of capital, and expected growth. As the economy evolves these values and relationships evolve over time. thus creating a constantly moving P/E ratio.

In modern times these "secular periods" last somewhere between 5 to 15 years. However, there are historical periods where such high P/E ratios lasted decades (19th century London exchanges) or a century (15th century Spanish sheep wool bank stock - miffing the exact instrument here).

For context, this is adjacent to my day job, I have a modest background in mathematics, I sit besides a PhD math quant at work and read economic history for fun.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Post Reply