Do small cap value tilters need REITs?

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woof755
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Do small cap value tilters need REITs?

Post by woof755 » Sun Jan 16, 2011 6:34 pm

I'm at 70% stocks, 60% of that domestic, and 40% of my domestic equity is in Vanguard small cap value index (60% TSM). Of my total portfolio, TSM is 25% and SCV is 17%.

From this link, which I'm not sure is still accurate (it's not too recent), it appears that REITs make up about 2% of TSM and about 10% of SCV index.

http://www.bogleheads.org/wiki/Percenta ... ndex_Funds

So, basically about 2.5% or 3% of my portfolio is comprised of REITS.

I like the simplicity of not owning a REIT fund (which is probably the answer to my question), but I'm wondering if the small value tilters out there own REITs separately, or do you just count on the SCV tilt to provide the REIT diversification?

Thanks, all.
Last edited by woof755 on Sun Jan 16, 2011 6:43 pm, edited 1 time in total.
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Post by Multifactor Advisor » Sun Jan 16, 2011 6:38 pm

No need. REITS lower returns if taken from SV allocation, increase tracking error if taken from TSM allocation, and increase risk if taken from fixed income allocation. You already own REITS in your Vanguard SV fund.

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Post by woof755 » Sun Jan 16, 2011 6:43 pm

Multifactor Advisor wrote:No need. REITS lower returns if taken from SV allocation, increase tracking error if taken from TSM allocation, and increase risk if taken from fixed income allocation. You already own REITS in your Vanguard SV fund.
what do you mean "taken from"?
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Re: Do small cap value tilters need REITs?

Post by jimbone » Sun Jan 16, 2011 6:44 pm

woof755 wrote: I like the simplicity of not owning a REIT fund (which is probably the answer to my question), but I'm wondering if the small value tilters out there own REITs separately, or do you just count on the SCV tilt to provide the REIT diversification?
I do not, because I have no room in tax-advantaged for a separate REIT fund. But even if I did, I doubt I would... although that is just a personal preference on my part.

And yes, I think you answered your own question if you view having a dedicated REIT fund complicating your portfolio.

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Post by steve roy » Sun Jan 16, 2011 6:44 pm

All depends on how much of your stash you want to devote to commercial real estate. There's no "right" answer. If you want 10% of your total nut in REITS, you'll need to add more. If not, not.

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Post by Blue » Sun Jan 16, 2011 6:45 pm

for us, No additional allocation to REIT's.

Too tax inefficient, too limited tax deferred space, too little benefit of holding additional allocation to REIT's, and enough REIT's in the Vanguard SCV fund.

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Re: Do small cap value tilters need REITs?

Post by YDNAL » Sun Jan 16, 2011 6:50 pm

woof755 wrote:
Multifactor Advisor wrote:No need. REITS lower returns if taken from SV allocation, increase tracking error if taken from TSM allocation, and increase risk if taken from fixed income allocation. You already own REITS in your Vanguard SV fund.
what do you mean "taken from"?
I think (s)he means "reducing" you allocation to SV or TSM of Fixed to get REITs separately (tilt).
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Post by stevewolfe » Sun Jan 16, 2011 7:06 pm

Regarding REIT composition of the Small Value Index Morningstar says:
The fund's REITs exposure over the past three years has averaged roughly 12% of assets, compared with 1.4% for the typical peer.

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Post by re@51.5 » Sun Jan 16, 2011 7:24 pm

REITs or Sm Value?
SmallHi wrote:Clearly, under almost any conceivable circumsances, diversification into a combo of SV stocks and ST bond s(depending on risk/return goals) is more advantageous than adding another sector to a portfolio like REITS.
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Post by GammaPoint » Sun Jan 16, 2011 7:27 pm

No one "needs" REITs, but although I have a significant small cap value exposure I still have a small separate REIT holding. I like being able to rebalance with REITs separately from the small cap value stocks.

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Post by hsv_climber » Sun Jan 16, 2011 7:31 pm

GammaPoint wrote:No one "needs" REITs, but although I have a significant small cap value exposure I still have a small separate REIT holding. I like being able to rebalance with REITs separately from the small cap value stocks.
+1.
I do the same thing.

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REIT is Seperate Asset Class, Not Sector

Post by Random Walker » Sun Jan 16, 2011 10:00 pm

I believe most academics feel REITs are a separate asset class, not just a sector. First of all, the source of income is different. Secondly there is a diversification benefit since they are not perfectly correlated. Lastly, I think Larry stated that the way to distinguish separate asset class from just a sector is if returns differences can be explained by more than just factor loads. So it's worth considering separate from SV.

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Post by Noobvestor » Sun Jan 16, 2011 10:37 pm

It's not just about there being overlap between REITs and SCV, it is that they are also fairly correlated classes. If I were going to add something to TSM and SCV, I'd think about things like Energy, Health or Precious Metals maybe that add a 'more different' component to the mix.

To make a loose analogy: if you have TIPS and short-term treasuries and want more diversification, would you buy short-term investment grade or something intermediate or long term? In other words: if the goal is to increase diversification, why not go for something 'more different'?
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Post by mickeyd » Sun Jan 16, 2011 10:45 pm

Probably do not need REITs.

I have a SCV tilt and own the REIT fund "for fun" in my Roth account. Jumping into REITs (maybe 2%) was a "fun play" after I thought that I knew what they were all about. It has not been a bad investment, but I doubt that I will have it 10 years from now since I have a bunch of SCV and TSM which includes REITs.
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Post by jimkinny » Mon Jan 17, 2011 5:51 am

It seems the answer you get depends upon the writer's opinion. L Swedroe has made a compelling case for including REITs in a portfolio as as a separate asset class. Historically his data indicate that adding REITs to a portfolio decreases portfolio volatility while increasing portfolio returns (with rebalancing). I suggest you read his book(s) and make up your own mind. I recently sold all of my REITs in spite of accepting that REITs are a somewhat uncorrelated asset class (historically, of course). I simply decided that I was not interested in REITs due to what I consider their recent extreme volatility and my desire for a simpler portfolio. Also, IMO, over the long term, my decision to have a certain percentage of my portfolio in bonds vs stocks far outweighs any other decision that I have to make.

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Post by Beantown85 » Mon Jan 17, 2011 9:08 am

No. I have a SCV tilt, and I don't see the need.

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Re: Do small cap value tilters need REITs?

Post by iceport » Mon Jan 17, 2011 10:30 am

woof755 wrote:Do small cap value tilters need REITs?
If not, would the converse also be true, that those with significant REIT allocations need not small cap value tilt?

--Pete

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Re: Do small cap value tilters need REITs?

Post by woof755 » Mon Jan 17, 2011 3:32 pm

petrico wrote:
woof755 wrote:Do small cap value tilters need REITs?
If not, would the converse also be true, that those with significant REIT allocations need not small cap value tilt?

--Pete
Not for me. A 10% allocation to REIT wouldn't equal the degree of small value tilt I'd like, plus would miss out on the diversification of the rest of small cap value index.

I have read Larry's books. As I was typing the OP, I actually expected the math to turn out to be more impressive--thought that my overall portfolio has more REITs than 2.5%. I'm not inspired to add them at this point, but I do appreciate all of your thoughts. I have to admit I'm missing out on some diversification.
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Post by CABob » Mon Jan 17, 2011 5:22 pm

I have fairly small allocatins to both SCV and REIT, but, this conversation thread has got me wondering whether I should consider changing.
Bob

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Post by woof755 » Mon Jan 17, 2011 5:38 pm

CABob wrote:I have fairly small allocatins to both SCV and REIT, but, this conversation thread has got me wondering whether I should consider changing.
If you are considering increasing your allocation to SCV due to my OP, keep in mind that one benefit of doing so is that it allows one to increase the allocation to bonds--increased expected returns from SCV mean you can increase bond allocation to achieve the same expected return while lowering overall portfolio volatility.
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Post by larklea » Mon Jan 17, 2011 5:48 pm

Now I'm curious as to the REIT% in my other holdings. I can't seem to find this in Morningstar. Do you need the premium membership for this?

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Post by dbr » Mon Jan 17, 2011 6:13 pm

See the discussion at the end of this thread:

http://www.bogleheads.org/forum/viewtopic.php?t=66889

REITS aren't listed as such in portfolio composition at M*. I think they are actually classed as financials.

There has been the occasional thread here where someone has figured out the REIT composition of certain funds and reported it here.

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Re: Do small cap value tilters need REITs?

Post by iceport » Mon Jan 17, 2011 9:28 pm

woof755 wrote:
petrico wrote:
woof755 wrote:Do small cap value tilters need REITs?
If not, would the converse also be true, that those with significant REIT allocations need not small cap value tilt?

--Pete
Not for me. A 10% allocation to REIT wouldn't equal the degree of small value tilt I'd like, plus would miss out on the diversification of the rest of small cap value index.
Yeah, I guess that's what I expected. Mostly just a lighthearted comment. Though you'd be surprised what a 10% REIT and 5% SCB tilt can do for the appearance of a small/mid cap value tilt. About a third of the SCB is SCV (toothy grin). It's enough to convince me that you have to take a M* style box analysis with a grain of salt.

--Pete

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Re: Do small cap value tilters need REITs?

Post by learning_head » Mon Apr 22, 2013 1:17 pm

woof755 wrote:I'm at 70% stocks, 60% of that domestic, and 40% of my domestic equity is in Vanguard small cap value index (60% TSM). Of my total portfolio, TSM is 25% and SCV is 17%.

From this link, which I'm not sure is still accurate (it's not too recent), it appears that REITs make up about 2% of TSM and about 10% of SCV index.

http://www.bogleheads.org/wiki/Percenta ... ndex_Funds

So, basically about 2.5% or 3% of my portfolio is comprised of REITS.

I like the simplicity of not owning a REIT fund (which is probably the answer to my question), but I'm wondering if the small value tilters out there own REITs separately, or do you just count on the SCV tilt to provide the REIT diversification?

Thanks, all.
This is an old thread... but I thought I'd comment that VNQ, according to M* is mostly in large-blend, mid-blend, and large-growth areas today (34% / 22% / 14% respectively). While some of this is changing over time, I think it's interesting that the 2.5-3% REIT part of overall portfolio mentioned in the OP, due to overweighting of SCV, is actually a few small REITs (only 6% of VNQ) being magnified by the SCV tilt. These 6% are probably not representative of the overall US REIT class...

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Re: Do small cap value tilters need REITs?

Post by bertilak » Mon Apr 22, 2013 1:55 pm

Here is Morningstar's style map for Vanguard's REIT fund (VGSLX)

Image

Not much small-cap-value in there.
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Re: Do small cap value tilters need REITs?

Post by G-Money » Mon Apr 22, 2013 2:36 pm

learning_head wrote:
woof755 wrote:I'm at 70% stocks, 60% of that domestic, and 40% of my domestic equity is in Vanguard small cap value index (60% TSM). Of my total portfolio, TSM is 25% and SCV is 17%.

From this link, which I'm not sure is still accurate (it's not too recent), it appears that REITs make up about 2% of TSM and about 10% of SCV index.

http://www.bogleheads.org/wiki/Percenta ... ndex_Funds

So, basically about 2.5% or 3% of my portfolio is comprised of REITS.

I like the simplicity of not owning a REIT fund (which is probably the answer to my question), but I'm wondering if the small value tilters out there own REITs separately, or do you just count on the SCV tilt to provide the REIT diversification?

Thanks, all.
This is an old thread... but I thought I'd comment that VNQ, according to M* is mostly in large-blend, mid-blend, and large-growth areas today (34% / 22% / 14% respectively). While some of this is changing over time, I think it's interesting that the 2.5-3% REIT part of overall portfolio mentioned in the OP, due to overweighting of SCV, is actually a few small REITs (only 6% of VNQ) being magnified by the SCV tilt. These 6% are probably not representative of the overall US REIT class...
It's true that Vanguard's REIT (VGSLX) fund is only 6% SV per M*. However, Vanguard's Small-Cap Value fund (VSIAX) is not 100% SV. Instead, it's only 46% in the bottom-left M* box. VSIAX actually looks like this on M*:

Code: Select all

0  0  0
9  9  1
46 27 8
And VGSLX looks like this:

Code: Select all

0  34  14
8  22  6
6  8  2
Vanguard shows that VSIAX is actually 16.41% Real Estate now (click the "Compare" button after you look up VSIAX on Vanguard's website).

VSIAX's Annual Report is here: https://personal.vanguard.com/funds/rep ... 2210073420. It lists every holding as of 12/31/12. As far as I can tell, REITs fall under "Financials" which are listed on pages 49-54. Just using the search function, I found 36 different companies that have either "REIT" or "Real Estate" or "Properties" in their name in VSIAX. Keep in mind that there are only 121 companies held by the REIT fund, so that's at least 30% of all the REIT companies. There may be additional REITs in the fund that don't use one of those words in their name.

My conclusions:
(1) Vanguard's SCV fund has more than just "a few small REITs." Certainly not all of them, but at least 30% (by quantity, not capitalization).
(2) Investors who hold SCV need to take into account the significant REIT holdings in SCV when determining whether (and if so, how much) to allocate separately toward REITs.

EDIT: Adding the search term "Realty" when reviewing the annual statement, it looks like there are closer to 60 different REIT companies in SCV. That's nearly half of the companies in the REIT fund. I suppose it is possible for companies with the words "REIT" or "Realty" or "Real Estate" or "Properties" in their name to not be REITs, but I think it is equally likely that there are REITs in SCV with none of those words in their name.
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Re: Do small cap value tilters need REITs?

Post by kenyan » Mon Apr 22, 2013 2:38 pm

I tilt to SCV, and I also use REITs; they offer reasonably low correlation to major stock indices - lower than you can achieve with any combination of value, growth, small, large, domestic, international (emerging or otherwise) as your variables. They're still high risk (and part of my equity allocation), but I like having one more diversifier in there.
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Re: Do small cap value tilters need REITs?

Post by MN Finance » Mon Apr 22, 2013 2:55 pm

The correlation of large stocks to small is probably around 0.60 and the correlation of SV to REITs is also about 0.60, so if someone find value in tilting to small, then there's just as much value in also tilting to add REITs (though I don't know the magnitude of that value)

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Re: Do small cap value tilters need REITs?

Post by feh » Mon Apr 22, 2013 3:23 pm

I own a REIT fund and also have a SV tilt.

For those of you that believe in holding REITs - what percentage of your total portfolio is your goal (including not just REITs, but also the real estate component of other holdings)?

I ask because I'm planning on increasing my SV holdings and don't want to be overweight on real estate. M* says VBR is 16% real estate.
Last edited by feh on Mon Apr 22, 2013 3:52 pm, edited 1 time in total.

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Re: Do small cap value tilters need REITs?

Post by EDN » Mon Apr 22, 2013 3:36 pm

woof755 wrote:I'm at 70% stocks, 60% of that domestic, and 40% of my domestic equity is in Vanguard small cap value index (60% TSM). Of my total portfolio, TSM is 25% and SCV is 17%.

From this link, which I'm not sure is still accurate (it's not too recent), it appears that REITs make up about 2% of TSM and about 10% of SCV index.

http://www.bogleheads.org/wiki/Percenta ... ndex_Funds

So, basically about 2.5% or 3% of my portfolio is comprised of REITS.

I like the simplicity of not owning a REIT fund (which is probably the answer to my question), but I'm wondering if the small value tilters out there own REITs separately, or do you just count on the SCV tilt to provide the REIT diversification?

Thanks, all.
No, I don't think you need REITs if you already tilt to small and value. It won't do much good, it won't do much harm. Some think the best portfolio is the one that has the most "stuff". I think the best portfolio is the one that is most focused on a handful of durable risk/return relationships in large enough percentages to benefit from them fully.

So lets do some simulating. Say you have a 30% S&P 500, 30% Russell 1000 Value, 40% Russell 2000 Value mix. Allocations I see that include REITs have them at about 10% of equity, normally taken from the SV allocation (assuming the plan has SV). So, instead, we could use 30% S&P 500, 30% Russell 1000 Value, 30% Russell 2000 Value, and 10% Wilshire REIT Index.

Going back to 1979, through 3/2013, we see the former allocation annually rebalanced had a return of 12.8% with an SD of 17.1. The second allocation had a return of 12.7% with an SD of 16.7. Some may look at this and rejoice over the 0.4 reduction in volatility. I'm here to tell you you wouldn't feel it one bit. Nor would the 0.1% lower return hurt that much.

In general, if you want lower risk/lower return, you are better off just holding more high-quality bonds. Taking 3% from S&P 500 and putting in 5YR T-Notes, keeping 30% in Russell 1000 Value and 40% in Russell 2000 Value, we also go down to 12.7% with an SD of 16.6.

Over time, there just doesn't seem to be much to adding REITs to an existing asset class portfolio. If you use 'em, most important thing is to stay with them, and if not, don't add them after they've outperformed everything else.

In investing, there is black and white, and some grey area. REITs are in that later region. If you take the simpler is better tact, then REITs won't make the cut. If your idea of a good portfolio is to own as many different things as possible, they'll probably be in there. But as has been mentioned, they already comprise about 10% of SV, so in my example above, technically we already were 36% in small value and 4% in REIT, the 10% stand along position would be 13% total.

Eric

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Re: Do small cap value tilters need REITs?

Post by Bradley » Mon Apr 22, 2013 3:59 pm

Let' s see what others have to say................


"The Fours Pillars of Investing...." page 123 Bernstein says "...the maximum exposure you should allow for this asset class is 15% of your stock component"


On page 379 of the 2012 copyright version of "A Random Walk Down Wall Street...." Malkiel says ...................15% to real estate equities (REITs) to give some income growth to cope with inflation".


Swensen with 20% of the whole portfolio in REITs

Bill Schultheis 10% of whole portfolio in REITs

Frank Armstrong 8% of whole portfolio in REITs

Rick suggested 5% in his WSJ tight fisted portfolio. (for a 50/50 allocation)


REITs form the foundation of well constructed portfolios. As one of the core four they provide for varying correlations to both bonds and stocks forming an asset class with unique risks.
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Re: Do small cap value tilters need REITs?

Post by feh » Mon Apr 22, 2013 4:09 pm

Bradley wrote:Let' s see what others have to say................


"The Fours Pillars of Investing...." page 123 Bernstein says "...the maximum exposure you should allow for this asset class is 15% of your stock component"


On page 379 of the 2012 copyright version of "A Random Walk Down Wall Street...." Malkiel says ...................15% to real estate equities (REITs) to give some income growth to cope with inflation".


Swensen with 20% of the whole portfolio in REITs

Bill Schultheis 10% of whole portfolio in REITs

Frank Armstrong 8% of whole portfolio in REITs

Rick suggested 5% in his WSJ tight fisted portfolio. (for a 50/50 allocation)


REITs form the foundation of well constructed portfolios. As one of the core four they provide for varying correlations to both bonds and stocks forming an asset class with unique risks.
Thank you very much. Real estate is currently 14% of my portfolio, so while on the high side, doesn't seem to be extreme.

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Re: Do small cap value tilters need REITs?

Post by learning_head » Mon Apr 22, 2013 4:53 pm

EDN wrote:But as has been mentioned, they already comprise about 10% of SV, so in my example above, technically we already were 36% in small value and 4% in REIT, the 10% stand along position would be 13% total.
Eric, this is an old thread that I resurrected with the point that the part of REITs that comes from SV is only 6% of SV REITs out of the 100% VNQ which is mostly concentrated outside of SV area. Does it bother you that "blowing up" these REITs via SV exposure really concentrates on very small part (6%) of overall REIT class, which is likely not very representative of overall REIT class? In other words, having large REIT percentage because you heavily invest in very small subset of REIT universe might deny you diversification benefits of investing in REIT as separate class... ?

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Re: Do small cap value tilters need REITs?

Post by RobInCT » Mon Apr 22, 2013 5:47 pm

SCV is about 20% of my equity holding. So slight small-cap tilt. I still hold 8% of my total investments in REIT. I took it to 8% from 10% when I added the small value tilt for the overlap reasons you mention.

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Re: Do small cap value tilters need REITs?

Post by G-Money » Mon Apr 22, 2013 6:05 pm

learning_head wrote:
EDN wrote:But as has been mentioned, they already comprise about 10% of SV, so in my example above, technically we already were 36% in small value and 4% in REIT, the 10% stand along position would be 13% total.
Eric, this is an old thread that I resurrected with the point that the part of REITs that comes from SV is only 6% of SV REITs out of the 100% VNQ which is mostly concentrated outside of SV area. Does it bother you that "blowing up" these REITs via SV exposure really concentrates on very small part (6%) of overall REIT class, which is likely not very representative of overall REIT class? In other words, having large REIT percentage because you heavily invest in very small subset of REIT universe might deny you diversification benefits of investing in REIT as separate class... ?
learning_head,

Please see my post above. Your point about SCV concentrating on 6% of the overall REIT market does not appear to be accurate.
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Re: Do small cap value tilters need REITs?

Post by RNJ » Mon Apr 22, 2013 6:45 pm

I don't know the underlying mathematics - I wish I did - but in looking at the M* charts referenced by Bradley, it occurs to me that unless the REIT holdings within the Vanguard Small Value Index significantly influence the behavior of the fund as an independent, whole entity, the fact that the fund holds REITs matters very little, if at all. The same way in which the fact that TSM holds REITs matters very little, if at all.

Among the "lumpers", the argument goes that TSM holds REITs (or small/large value value, etc.), so they don't need a separate REIT allocation. And certainly, if one wishes to hold the whole market, its a wonderful way to go. The "splitters'" idea of holding different "passengers" (groups of stocks) in separate "vehicles" (index funds) is that these vehicles tend to behave differently at different times and splitters hope to have an opportunity to benefit from these differences in behavior in the form of reduced volatility and/or enhanced return of the portfolio as a whole. In a sense, it almost doesn't matter what these vehicles hold - it is the dispersion of the behavior of the vehicles we are interested in.

While the fact that VBR holds more REITs than IJS may have contributed to the slight difference in performance, there is still no mistaking VBR for a REIT fund. When the contents are grouped in these particular packages (small value / REITs), the packages behave differently. In still other words, other things being equal, while it may be nice (or not) to have REITs in my small value (or TSM) fund , if the fund doesn't behave like a REIT fund, it really doesn't seem to very much matter.

Am I missing something?

Thanks.

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Re: Do small cap value tilters need REITs?

Post by G-Money » Mon Apr 22, 2013 7:40 pm

RNJ wrote:Am I missing something?
Well, if you want 10% of your equity in REITs (not unusual), and if you have equal holdings in VTI, VXUS, VBR, VSS, you've already got about 8.5% in REITs. So you'd only want maybe 2% of equity in a separate REIT fund, otherwise you'd be greatly overweight your target RE allocation.

The comparison to TSM is overstating the case. SCV is just 2-3% of TSM, which is trivial. People add a separate SCV find because they want a significant overweight. On the other hand, the 16% stake in REIT isn't quite trivial, especially since most people do not overweight REITs to nearly the same degree as they do SCV.

The point is simply to know what you own, and set your AA accordingly.
Don't assume I know what I'm talking about.

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Re: Do small cap value tilters need REITs?

Post by EDN » Mon Apr 22, 2013 8:09 pm

Sorry if some took my comments about REITs being in SV to represent that's why they aren't necessary. That was just a passing comment.

No, small value is a 1,000 to 1,500 stock asset class diversified across all the sectors in the market that is well defined by the FF multifactor research. REITs, on the other hand, are hazy. Maybe a sector, maybe an asset class (if they proxy for commercial property).

I personally don't care if they are/aren't, because I'm not sacrificing small value dollars to fund them (or large value). Sure, they've done marginally better than SV for the last 10-12 years, longer term, of course, that is not the case and certainly not expected. From early 80s through 1999, REITs trailed bonds!

So is the case with sector-like vehicles. Sporadic periods of really high returns and then painfully low returns (anyone seen Precious Metals & Mining lately? I used to get a hard time on that one too...not so much anymore. Wonder why?)

Stick with portfolios broadly diversified across the dimensions of return (market, size, price, term, and credit), somebody wil always own stocks or sectors or managers doing better than you... until they aren't.

Eric

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Re: Do small cap value tilters need REITs?

Post by Bradley » Mon Apr 22, 2013 10:29 pm

EDN wrote:
OK, great. REITs have beaten my DFA SV by 0.1% over the last decade

How's my SV vs your S&P 600 Value?

I hold about double the SV you do.

How's my US LV doing relative to your TSM?

Eric



Eric, you crack me up. As indicated in an earlier post, I pointed out that Vanguard’s REIT has outperformed DFA’s SV fund over the past day, week, month, 3 month, YTD, 1 yr, 3yr, 5yr, 10yr and 15yr period as of this morning. The outperformance has been 1.23% for 15 years! I know of no other fund which can claim to have outperformed DFSVX over the same standard periods as measured by M*. You may want to check the note for the 15 year performance data.............

“Italics indicate Extended Performance. Extended performance is an estimate based on the performance of the fund's oldest share class, adjusted for fees.”

Let me clear up a couple other of your misconceptions/misstatements.

1.) You ask,....”How's my SV vs your S&P 600 Value?”............... I own no S&P 600 Value........ZERO. If I had to bet I would say we have the same SV fund.

2.) You claim...”And I hold about double the SV you do”...............I would be willing to bet a case of wine that you do not.

3.) You ask......”How's my US LV doing relative to your TSM? ....You are comparing apples to oranges.

Getting back on topic, it is my opinion that a well diversified portfolio should contain REITs whether or not you use a small value tilt. REITs form the foundation of well constructed portfolio. As one of the core four they provide for varying correlations to both bonds and stocks forming an asset class with unique risks. In fact, REITs have varying correlations with stocks and bonds; at times highly positive and at times negative. The variable rolling correlation of REITs to stocks and bonds means that the asset class has unique risk and should be included as part of a well diversified portfolio. The FACT that they have outperformed DFA’s SCV over the past 15 years should be an indication of it’s value.

Bradley
You can sum up any active fund manager’s presentation at an investor conference in one sentence: “We’re doing well, all things considered.”

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Re: Do small cap value tilters need REITs?

Post by EDN » Mon Apr 22, 2013 10:49 pm

Bradley,

Sectors are certainly not core holdings. Nice try. If you hold a TSM based portfolio, sure, REITs or almost anything else provide great diversification. Hold small and value, not so much, as my example above shows. Performance of sectors are full of noise, and some will outperform SV even over long periods. Tech in the 1990s, Precious Metals & Mining through '09, and REITs are the it-thing today. As I said, if you hold them long enough you'll be fine. But you'll have to endure periods like the 80s/90s when they trail bonds. No need to put yourself through those swings. Core equity and fixed asset classes are sufficient.

As for your holdings, here is what you've told us you own:
by Bradley » Sun Dec 05, 2010 7:19 pm
I like and use Rick's model from his WSJ "Tight Fisted Investing" article.

Jim
Bradley
You've been touting this allocation for years. And per the comparisons above, it hasn't been pretty. [Snarky comment removed by admin LadyGeek]

Eric

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Re: Do small cap value tilters need REITs?

Post by G-Money » Tue Apr 23, 2013 2:59 am

Per my edit above, there are nearly 60 companies in SCV that have the word "REIT", "Real Estate", "Realty", or "Properties" in their name. There are only 121 companies in the REIT fund. So it looks like at least half the companies (by quantity, not capitalization) in the REIT fund are in SCV. That's more than just a "few", and, my guess is they are at least reasonably representative of the REIT market.
Don't assume I know what I'm talking about.

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Re: Do small cap value tilters need REITs?

Post by Bradley » Tue Apr 23, 2013 10:26 am

EDN wrote:Bradley,

Sectors are certainly not core holdings.


Eric

Eric,

Again, let me clear up a few misconceptions for you. Even though the date of Rick’s Wall Street Journal article was in 09 I had held the same basic portfolio products for years. Also, the 50/50 allocations in the article were adjusted to my personal situation and need, ability and willingness for risk. When Rick decided to drop BRSIX I did too. Additionally, on 3/28/2013 sold all IJS and divided the proceeds 80/20 in DFSVX/VTI.
As you can see, making assumptions can make you look silly.

Getting back on topic, REITs have varying correlations with stocks and bonds; at times highly positive and at times negative. The variable rolling correlation of REITs to stocks and bonds means that the asset class has unique risk and should be included as part of a well diversified portfolio. If feel you comfortable calling REITs a sector fund, go for it. I feel comfortable calling it a separate asset class since it behaves differently than other equity classes.


Bradley



PS



The Core Four
by Rick Ferri » Sun Dec 30, 2007 1:46 pm
.
A simple way to construct a portfolio is through core holdings and extended holdings. The core holdings account for a majority of a portfolio’s risk and return characteristics. The extended holdings provide the finishing touches.

This post introduces the “Core Four” funds, and provides a brief framework for selecting extended holdings. Core funds are the cornerstones of a portfolio. They are the base from which the rest of a portfolio sits.

The “Core Four” are:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX – fee 0.19%)
Vanguard FTSE All-World ex-US Index Fund (VFWIX – fee 0.40%)
Vanguard REIT Index Fund Investor Shares (VGSIX – fee 0.21%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX – fee 0.20%)
You can sum up any active fund manager’s presentation at an investor conference in one sentence: “We’re doing well, all things considered.”

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Re: Do small cap value tilters need REITs?

Post by abuss368 » Tue Apr 23, 2013 10:43 am

The Core 4 is an awesome diversified portfolio. I have followed it with success as have family.

Thank you Rick!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Do small cap value tilters need REITs?

Post by Blues » Tue Apr 23, 2013 10:59 am

To whom this may concern,

We're all in this together and hopefully sharing investing and portfolio insights for the betterment of the community.

I have nothing but the greatest respect for Messrs. Bogle, Bernstein, Ferri, Swedroe, EDN et al and have learned a ton from each of them via books, PM's and posts.

Do you think that we could put the vitriol, sarcasm and animus aside (or at least take it to PM if you are unable to do so) so that the rest of us could enjoy the contributions that make this site so special...instead of bringing it down to the level of the Jerry Springer Show?

Thanks in advance.
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Adding funds over time

Post by BornInCA » Tue Apr 23, 2013 11:13 am

I was also wondering the same thing for adding money to IRAs over time one fund at a time starting at $3000 and adding funds to the fund till $10000 is reached (unless otherwise noted). Here's the priority order I'm implementing for my wife's IRA:
1.) Total Stock Market Index
2.) Total International Stock Market Index
3.) Total Bond Market Index
4.) Small Cap Value Index
5.) Short Term Investment Grade (if combined value of the first 3 is at least $33000 or combined value of the first 4 is valued at $43000, only $3000 will go into this fund)
6.) Inflation Protected Securities (after #5 has been funded and if combined value of the first 3 is at least $33000 or combined value of the first 4 is valued at $43000, only $3000 will go into this fund)
7.) High-Yield Corporate (after #5 and #6 has been funded and if combined value of the first 3 is at least $33000 or combined value of the first 4 is valued at $43000, only $3000 will go into this fund)
8.) FTSE All-World ex-US Small Cap Index (until I can buy the fund without purchase fee, ETF version would have to be purchased after 5-7 are funded AND combined value of the first 4 exceeds $40000)
9.) Value Index
10.) REIT Index
11.) Global ex-US Real Estate Index (until I can buy the fund without purchase fee, ETF version would have to be purchased after 5-7 are funded AND combined value of the first 4, 9th, and 10th exceeds $60000)
12.) Emerging Markets Index
13.) WisdomTree Developed Markets SmallCap Dividend ETF (DLS) or an international small cap value index fund or ETF
14.) U.S. Microcap fund such as Ishares Russell Microcap (IWC)
15.) commodities fund (maybe)

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Re: Do small cap value tilters need REITs?

Post by LadyGeek » Tue Apr 23, 2013 4:57 pm

I removed a few posts which got out of line, some continuity is lost. See: Forum Policy
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
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