Upcoming 2017 changes to Vanguard REIT fund(s)

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tibbitts
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Upcoming 2017 changes to Vanguard REIT fund(s)

Post by tibbitts » Fri Aug 11, 2017 6:55 pm

I've been searching for a Boglehead post(s) discussing the upcoming significant changes to Vanguard's REIT index fund, and introduction of the new Vanguard REIT II index fund (for those Bogleheads with $100MM to devote to retaining their current REIT exposure, apparently) but haven't found anything beyond the announcement, buried in another post, viewtopic.php?t=223426

It seems like everyone would have some thoughts as to how this change affects the value of the Vanguard REIT fund, assuming one accepts the value of having REITs at a level beyond they're reflected in the total market. Maybe I've missed the discussion somewhere?

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iceport
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by iceport » Fri Aug 11, 2017 8:35 pm

tibbitts wrote:It seems like everyone would have some thoughts as to how this change affects the value of the Vanguard REIT fund, assuming one accepts the value of having REITs at a level beyond they're reflected in the total market. Maybe I've missed the discussion somewhere?
Huh. I hadn't heard about this, so thanks for the heads-up. Information seems to be difficult to come by. Some of the tidbits I found include:

From the Vanguard announcement:
In addition to aligning the funds with other Vanguard sector funds and broadening the funds’ mandates, these related actions are designed to provide additional investment capacity while ensuring continued compliance with SEC and Internal Revenue Code diversification requirements.
— From two brief articles, https://www.etftrends.com/a-big-reit-co ... g-changes/ and http://www.barrons.com/articles/timber- ... 1500994456, it seems some amount of timber REITS will be included.

— This NAREIT article, https://www.reit.com/nareit-you/nareit- ... sure-reits, notes that the fund will still be 95% invested in listed REITs.

That Barron's article refers to the composition of the new index, but I couldn't find it. I hope this doesn't lead to a raft of front-running. Other than the front-running potential, I'm cautiously optimistic that this will be a benefit in the long term, with broader diversification.

What are the ramifications in terms of the fund's volatility? It's overlap with the broader market indexes? It's function as a proxy for real estate ownership?
"Discipline matters more than allocation.” ─William Bernstein

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triceratop
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by triceratop » Fri Aug 11, 2017 8:39 pm

It's possible (unclear to me at least) the note about diversification is not diversification to us the investors but requirements about the portion of outstanding shares which by law can be owned by a single fund.
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iceport
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by iceport » Fri Aug 11, 2017 8:50 pm

I think you are correct, but there is also a reference to broader exposure to the real estate market (which I read as providing more investment capacity by increasing the number of stocks in the index), and the note from people who must have access to the index composition that it will include timber REITs. The fund currently holds only 157 stocks, with over $63B in assets...
"Discipline matters more than allocation.” ─William Bernstein

kosomoto
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by kosomoto » Fri Aug 11, 2017 10:52 pm

Not too happy about this since REITs are 10% of my portfolio. If I wanted other real estate companies I would have bought a real estate fund. REITs pay no corporate taxes and I like that fact, this obliterates my point of holding.

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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by JDDS » Fri Aug 11, 2017 11:15 pm

iceport wrote:
tibbitts wrote:It seems like everyone would have some thoughts as to how this change affects the value of the Vanguard REIT fund, assuming one accepts the value of having REITs at a level beyond they're reflected in the total market. Maybe I've missed the discussion somewhere?
Huh. I hadn't heard about this, so thanks for the heads-up. Information seems to be difficult to come by. Some of the tidbits I found include:

From the Vanguard announcement:
In addition to aligning the funds with other Vanguard sector funds and broadening the funds’ mandates, these related actions are designed to provide additional investment capacity while ensuring continued compliance with SEC and Internal Revenue Code diversification requirements.
— From two brief articles, https://www.etftrends.com/a-big-reit-co ... g-changes/ and http://www.barrons.com/articles/timber- ... 1500994456, it seems some amount of timber REITS will be included.

— This NAREIT article, https://www.reit.com/nareit-you/nareit- ... sure-reits, notes that the fund will still be 95% invested in listed REITs.

That Barron's article refers to the composition of the new index, but I couldn't find it. I hope this doesn't lead to a raft of front-running. Other than the front-running potential, I'm cautiously optimistic that this will be a benefit in the long term, with broader diversification.

What are the ramifications in terms of the fund's volatility? It's overlap with the broader market indexes? It's function as a proxy for real estate ownership?
The Vanguard link was interesting, thanks for posting.

Splendid Exchange
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by Splendid Exchange » Sat Aug 12, 2017 1:23 am

I found some information on the "MSCI USA IMI Real Estate Index" below (click on "fact sheet" under "MSCI USA IMI Real Estate Index"). This index features 180 stocks.

https://www.msci.com/msci-usa-imi-sector-indexes

Please note what I found is not the "25/50" version of the index mentioned by Vanguard in it's press release. My guess is the only difference between the version I found and the "25/50" version is the "25/50" index is managed to meet certain federal legal standards such that A) no single stock ever accounts for 25% or more of the index and B) the total combined weight of all stocks which individually account for 5% or more of the index is less than 50%. But that is merely my guess.

If my guess is correct, then non-reit stocks account for less than 4% of the proposed index.

For comparison's sake, below is a similar breakdown of the existing index (MSCI US REIT INDEX) used by Vanguard for it's REIT index products. The existing index features 156 stocks and is 100% REIT.

https://www.msci.com/www/index-factshee ... x/08187641

From looking at the pie charts in both fact sheets, it seems the biggest difference is that the "specialized REITs" subcategory is weighted much more heavily in the proposed index (29% vs 17%).

My take so far: the index proposed by Vanguard is not a dealbreaker.

grok87
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Re: Upcoming 2017 changes to Vanguard REIT fund(s)

Post by grok87 » Tue Aug 15, 2017 7:46 pm

thanks for the heads up.

not a fan of this change...
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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