What happened to Fidelity Real Estate Index fund?

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tenkuky
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What happened to Fidelity Real Estate Index fund?

Post by tenkuky »

I own FSRNX (FIDELITY REAL ESTATE INDEX FUND) a small position in my 403b.
I just noticed it is down 19% YTD.
I am not sure what gives, can't be dividend payout, and Vanguard's VNQ/VGSLX is down only 10-12% in same period.
What am I missing when comparing 2 index REIT funds? Fido ER is slightly better so can't be expenses.
They did change the tracking index for FSRNX but a 7% difference is strange.
Thanks in advance!
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Re: What happened to Fidelity Real Estate Index fund?

Post by 000 »

Comparison with VNQ suggests the Fidelity fund tracks an index holding more Industrial/Office space.

For another comparison, note that the Fidelity fund is doing slightly better than SCHH.
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Re: What happened to Fidelity Real Estate Index fund?

Post by tenkuky »

000 wrote: Wed Sep 30, 2020 6:31 pm Comparison with VNQ suggests the Fidelity fund tracks an index holding more Industrial/Office space.

For another comparison, note that the Fidelity fund is doing slightly better than SCHH.
So the tracking index for Fido isn't changed yet, but soon...
Currently, Dow Jones U.S. Select Real Estate Securities Index; effective December 1, 2020, MSCI US IMI Real Estate 25/25 Index.
VNQ tracks MSCI US Investable Market Real Estate 25/50 Index

I had no idea how much of a difference these are.
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Re: What happened to Fidelity Real Estate Index fund?

Post by Oregano »

Vanguard's Real Estate funds used to be REIT funds, but they changed the mandate a couple years ago to be just RE and no longer just REITs. So the holdings are different than pure REIT funds.
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Re: What happened to Fidelity Real Estate Index fund?

Post by sojersey »

Another FSRNX holder (obviously decided to get some REIT's in Feb :oops: ), and FWIW just got a notice they are changing the index from Dow Jones U.S. Select Real Estate Securities Index to MSCI 25/25 that they claim will be more diversified.

Change happens in December
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Re: What happened to Fidelity Real Estate Index fund?

Post by CycloRista »

tenkuky wrote: Wed Sep 30, 2020 6:22 pm I own FSRNX (FIDELITY REAL ESTATE INDEX FUND) a small position in my 403b.
I just noticed it is down 19% YTD.
I am not sure what gives, can't be dividend payout, and Vanguard's VNQ/VGSLX is down only 10-12% in same period.
What am I missing when comparing 2 index REIT funds? Fido ER is slightly better so can't be expenses.
They did change the tracking index for FSRNX but a 7% difference is strange.
Thanks in advance!
Nobody knows...

I'd venture to guess that commercial real estate will continue sinking due in part to less demand over time from so many in the workforce set to permanently work remotely. Some estimates put it at 10-20% or higher that will no longer be sitting in cubeville, offices or idiotic open floor plan spaces.

Once more of the multi-year real estate leases come up for renewal, there will be a tsunami of commercial space available.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

Apparently, Fidelity did a near-perfect job of tracking its index. Fidelity's main web page for FSRNX says it tracks the Dow Jones U.S. Select Real Estate Securities Index, and that's the index Morningstar says it is plotting:

Source

Image

Meanwhile, the Vanguard Real Estate Index Fund, VGSIX/VGSLX, tracks the MSCI US Investable Market Real Estate 25/50 Index. Morningstar only has that index back to 8/31/2016, but that's long enough to include the plunge, and, interestingly, Vanguard actually underperformed its index:

Source

Image

So whatever the explanation, Vanguard tracked a better-performing index, and fell short--yet still beat Fidelity, which faithfully followed a worse-performing index.

So, three on a chart. Orange is Vanguard's index, blue is Vanguard's actual fund, and green is Fidelity's FSRNX. I don't know how to trick Morningstar into showing us both indexes, but we know already that Fidelity tracked its index almost perfectly.

Image

I had tended to think that it didn't usually matter what index an index fund was following, but I have to revise that. It's only true for asset classes whose definitions and boundaries are obvious; the narrower and more arcane the asset classes, the greater a difference it makes where the index provider draws the boundaries. I'm thinking it must have been a time when investing in real estate was very tricky and that even though Vanguard is tracking an "Investable Market" index, maybe the market wasn't really as investable as an index fund manager would want it to be?
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

tenkuky wrote: Wed Sep 30, 2020 6:41 pm...So the tracking index for Fido isn't changed yet, but soon... Currently, Dow Jones U.S. Select Real Estate Securities Index; effective December 1, 2020, MSCI US IMI Real Estate 25/25 Index. VNQ tracks MSCI US Investable Market Real Estate 25/50 Index...
So with narrowly focused index funds and ETFs, you have to worry about changes in index just the way active fund investors need to worry about changes in managers?
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

Top ten holdings. If you saw those and were asked "are these index funds even tracking the same thing?" what would you answer? Wild. I've never seen that big a difference in the kinds of index funds I use.

Of the top ten holdings, they only have five in common. And the ones that are in common are being held at wildly different weights, e.g. almost twice as much AvalonBay in Fidelity compared to Vanguard. Biggest holding in Vanguard's fund isn't even among the top ten in Fidelity's.

It must not be at all easy to decide what a "real estate" stock is. Worse than deciding which countries are "emerging markets."

Image
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Re: What happened to Fidelity Real Estate Index fund?

Post by tenkuky »

nisiprius wrote: Fri Oct 16, 2020 7:02 am Top ten holdings. If you saw those and were asked "are these index funds even tracking the same thing?" what would you answer? Wild. I've never seen that big a difference in the kinds of index funds I use.

Of the top ten holdings, they only have five in common. And the ones that are in common are being held at wildly different weights, e.g. almost twice as much AvalonBay in Fidelity compared to Vanguard. Biggest holding in Vanguard's fund isn't even among the top ten in Fidelity's.

It must not be at all easy to decide what a "real estate" stock is. Worse than deciding which countries are "emerging markets."

Image
Thanks, Nisi.
This is wild. Learned my lesson that some "index" funds are not at all similar. Luckily RE only makes up ~3-5% of my portfolio so will be likely dead weight. I don't want to sell low so will hold on (and decent dividends).
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Re: What happened to Fidelity Real Estate Index fund?

Post by 000 »

nisiprius wrote: Fri Oct 16, 2020 6:41 am So with narrowly focused index funds and ETFs, you have to worry about changes in index just the way active fund investors need to worry about changes in managers?
Yes, it seems Fidelity is following the course already set by the Schwab Real Estate Fund SCHH, selling low on commercial real estate this year and buying high on data center REITs via an index change.

Just another reason I'm glad I picked my own REITs.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

Remember Jack Bogle has said investors could go their lifetime without a need for a sector fund.
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Re: What happened to Fidelity Real Estate Index fund?

Post by alex_686 »

Oregano wrote: Sat Oct 03, 2020 9:52 am Vanguard's Real Estate funds used to be REIT funds, but they changed the mandate a couple years ago to be just RE and no longer just REITs. So the holdings are different than pure REIT funds.
Note, you can't have a pure REIT fund, thus any fund claiming to be one is lying. If one were to have a pure REIT fund it could only hold REITs. Companies can't declare themselves REITs for 2020 until March/April (or even latter....) of 2021. Nobody has a crystal ball that can see in the future, not even index managers.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

In 2018, the GICS classification added "Real Estate" as a top-level "headline sector." Previously, REITs had just been included under "Financials." I had thought "Real Estate" was just a name for REITs but on looking carefully for the first time I see that the Real Estate "sector" consists of a single "industry group," also called "Real Estate," which in turn contains two "Industries," Equity Real Estate Investment Trusts and Real Estate Management & Development.

A 1/31/2018 letter to VGSIX/VGSLX/VNQ shareholders says
The fund’s former benchmark, the MSCI US REIT Index, is being replaced by the MSCI US Investable Market Real Estate 25/50 Index. To accomplish this change, we’re also using a transition index, the MSCI US Investable Market Real Estate Transition 25/50 Index, which will enable the fund to hold investments in a wider array of real estate-related securities. The benchmark index change aligns the fund with the newly constructed MSCI real estate sector. Under MSCI’s Global Industry Classification Standard methodology, investors still have exposure to equity REITs (97%) but will also gain exposure to certain specialized REITs as well as real estate management and development companies (3%).
You wouldn't think that a 3% exposure to "real estate management and development companies" could make all that much difference, so there's clearly a lot here that I don't understand.

MSCI's description of the MSCI US REIT index and the MSCI US IMI Real Estate 25/50 index doesn't really help me. Among other things I'm darned if I understand what the "25/50" is supposed to mean.

One thing does come out clearly, which is that the huge difference in the top ten holdings of the Fidelity and Vanguard funds is somehow mysteriously related to the difference between "REITs" and "Real estate," as it is mirrored in the index constituents of the two MSCI indexes. (The Fidelity fund is following a "REIT index" although it isn't the MSCI REIT index).

Image

The key might be understanding what the heck a "specialized REIT" is, why the MSCI US IMI Real Estate 25/50 index holds almost twice as much of them (!). The difference in "sub-industry weights" looks substantial.

Image

And, yes, there was a big difference in performance between the two MSCI indexes.
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Re: What happened to Fidelity Real Estate Index fund?

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nisiprius wrote: Fri Oct 16, 2020 9:11 pm One thing does come out clearly, which is that the huge difference in the top ten holdings of the Fidelity and Vanguard funds is somehow mysteriously related to the difference between "REITs" and "Real estate," as it is mirrored in the index constituents of the two MSCI indexes. (The Fidelity fund is following a "REIT index" although it isn't the MSCI REIT index).
Let me shed some light on the situation. It helps to understand that they are 2 different definitions.

GICS groups companies which have similar characteristics. For example, back in the day Caribbean Carnival Cruise Line was classified as real estate. It competitors were hotels and resorts which were real estate companies, and it acted like other hotel and resort companies. The fact that it did not own any real estate was besides the point. You want functional descriptive categories.

REITs is a specific tax code treatment. If you meet specific technical criteria you get to claim a special tax status and all the benefits that flow from that. Your business only has to be tangential to real estate. This ties to my above post. You can't actually declare yourself to be a REIT for a specific year until after you have filed your annual taxes. Companies, in theory, can flit in and out of REIT status every year. Back to your question.

Most real estate companies chose to declare themselves REITs for tax purposes. Fair enough. However, many companies figure out how to squeeze into a REIT definition even though they are not really real estate companies, nor act like one.

You can imagine the dilemma. Investors have been hold about the wonderful tax advantages of REITs so funds rush in to provided what the consumer demands. Creating a index based on how a company filed it returns last year has methodological problems. However, if you focus on real estate what do you do with the bacterized hybrid REITs?
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Re: What happened to Fidelity Real Estate Index fund?

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abuss368 wrote: Fri Oct 16, 2020 6:37 pm Remember Jack Bogle has said investors could go their lifetime without a need for a sector fund.
Yes indeed; particularly where the cards are stacked against you...

Approximately 42 percent of Americans were working from home in June 2020, according to a study by Stanford University’s Institute for Economic Policy Research. Many companies plan to extend the option of working at home indefinitely.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

CycloRista wrote: Sat Oct 17, 2020 4:39 am
abuss368 wrote: Fri Oct 16, 2020 6:37 pm Remember Jack Bogle has said investors could go their lifetime without a need for a sector fund.
Yes indeed; particularly where the cards are stacked against you...

Approximately 42 percent of Americans were working from home in June 2020, according to a study by Stanford University’s Institute for Economic Policy Research. Many companies plan to extend the option of working at home indefinitely.
I sold our REITS at the end of 2019 after about 20 years. Did very well. Now that I look at real estate, about 25% of the Vanguard REIT fund is Office, Retail, and Hospitality (Hotels). In my opinion, Hotels will come back over time for both business and leisure travel. It is the Office and Retail that concern me. Retail was changing over the years permanently and COVID accelerated that permanent shift. However, the shift has result in a demand and bull market for industrial and warehouses.

Office, by some arguments, may have been experiencing a shift too with technology and remote work. I think many of the office parks will need to be redeveloped into multi use properties which includes office, hotel, retail, multi-family. There were many articles in REIT magainze a couple of years ago on this multi use that I found interesting. There is demand for that in urban areas. Locally, our area has developed many of these multi use projects and they are very popular.

Data and Cloud storage facilities are a huge growth area. So is multi family apartments.

So do I think it is the quote “death” of real estate and REITS? Not by a long shot. I think it is a shift within the real estate and REIT industry.

Investors will probably be well rewarded over time.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

alex_686 wrote: Fri Oct 16, 2020 9:48 pm...GICS groups companies which have similar characteristics.... REITs is a specific tax code treatment. If you meet specific technical criteria you get to claim a special tax status and all the benefits that flow from that.... Most real estate companies chose to declare themselves REITs for tax purposes.... However, many companies figure out how to squeeze into a REIT definition even though they are not really real estate companies, nor act like one...
Thank you so much for your postings in this thread (and others!) I'll bet not very many Bogleheads who've ever bought a "REIT" or "real estate" fund understood this.

Now, consider the case of someone who wants to buy stocks that are related to actual real estate, in the belief that it represents a distinct asset class, low correlation, “Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve," etc. Life is imperfect, but which comes closer to realizing that goal, the goal of owning companies in the business of "real estate as we know it?"
  • the Dow Jones U.S. Select Real Estate Securities Index
  • the MSCI US REIT index
  • the MSCI US IMI Real Estate 25/50 index?
Note that the Dow Jones U.S. Select Real Estate Securities Index
is designed to measure the performance of publicly traded real estate securities. The index is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. The Dow Jones U.S. Select Real Estate Securities Index (RESI) seeks to measure equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

Clearly, "it's a 'REIT,' but what underlying business is it related to?" is an important question.

Doing some quick Wikipedia searches on the top ten stocks in the MSCI US IMI Real Estate 25/50 index (and the Vanguard Real Estate Index Fund) which tracks it, I see:

American Tower: "owner and operator of wireless and broadcast communications infrastructure"

Crown Castle: "provider of shared communications infrastructure in the United States. Its network includes over 40,000 cell towers and nearly 80,000 route miles of fiber"

Equinix: "specializes in Internet connection and data centers. The company is a leader in global colocation data center market share, with 205 data centers in 25 countries on five continents"

Digital Realty Trust: "carrier-neutral data centers and provides colocation and peering services. As of December 31, 2019, the company owned interests in 225 operating data center facilities"

SBA Communications Corporation: "owns and operates wireless infrastructure, including small cells, indoor/outdoor distributed antenna systems, and traditional cell sites"

So, five of the top ten holdings are classified as "specialized REITs" that do things I would call "telecom and tech." For the Vanguard fund, which tracks that index, they add up to 25.18% of the holdings.

For the Fidelity fund, Digital Realty Trust, 5.88% of holdings, is the only telecom-techish-sounding thing. Prologis: "logistics and global supply chain;" Public Storage, yep, self-storage; Welltower, "seniors housing, assisted living and memory care communities, post-acute care facilities, and medical office buildings;" AvalonBay, "apartments;" Alexandria, "office buildings and laboratories;" Realty Income, "free-standing, single-tenant commercial properties;" Simon Group, "the largest shopping mall operator in the US;" Equity Residential, "apartments;" Invitation Homes, "the largest owner of single-family rental homes in the United States."

So, companies whose real estate is related to telecom and tech constitute 25.18% of the Vanguard fund, and only 5.88% of the Fidelity fund.

Did all the well-informed people know that?

I gotta say, this graphic, copied and pasted from the Dow Jones U.S. Select Real Estate Securities Index web page, is less than helpful!

Image
Last edited by nisiprius on Sat Oct 17, 2020 7:44 am, edited 3 times in total.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

nisiprius wrote: Sat Oct 17, 2020 7:03 am
alex_686 wrote: Fri Oct 16, 2020 9:48 pm...GICS groups companies which have similar characteristics.... REITs is a specific tax code treatment. If you meet specific technical criteria you get to claim a special tax status and all the benefits that flow from that.... Most real estate companies chose to declare themselves REITs for tax purposes.... However, many companies figure out how to squeeze into a REIT definition even though they are not really real estate companies, nor act like one...
Thank you so much for your postings in this thread (and others!) I'll bet not very many Bogleheads who've ever bought a "REIT" or "real estate" fund understood this.

Now, consider the case of someone who wants to buy stocks that are related to actual real estate, in the belief that it represents a distinct asset class, low correlation, “Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve," etc. Life is imperfect, but which comes closer to realizing that goal, the goal of owning companies in the business of "real estate as we know it?"
  • the Dow Jones U.S. Select Real Estate Securities Index
  • the MSCI US REIT index
  • the MSCI US IMI Real Estate 25/50 index?
Note that the Dow Jones U.S. Select Real Estate Securities Index
is designed to measure the performance of publicly traded real estate securities. The index is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. The Dow Jones U.S. Select Real Estate Securities Index (RESI) seeks to measure equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S.
Exactly! I have spent 20 years investing in REITS. This has been my argument and “pounding the tables” related to the International Real Estate / REOC / REIT fund. A hybrid of everything in that soup! I too invested in the fund for a while (maybe 10 years) but sold it. Folks mistakenly and interchangeably use the term “REIT” with US and International. International so called “REITS” are many times different, not required to pay 90% of rents, different laws, and most companies are REOC - Real Estate Operating Companies. REOC have no requirement to pay anything out to investors and are often companies related to the real estate industry.

David Swensen recently clarified in an interview, and as a follow up to “Unconventional Success” that by REITS he means US REITS. David Swensen knows. I was always curious since the publishing of Unconventional Success if he would recommend International RE / REOC / REITS but there you have it.
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Re: What happened to Fidelity Real Estate Index fund?

Post by CycloRista »

abuss368 wrote: Sat Oct 17, 2020 6:56 am
CycloRista wrote: Sat Oct 17, 2020 4:39 am
abuss368 wrote: Fri Oct 16, 2020 6:37 pm Remember Jack Bogle has said investors could go their lifetime without a need for a sector fund.
Yes indeed; particularly where the cards are stacked against you...

Approximately 42 percent of Americans were working from home in June 2020, according to a study by Stanford University’s Institute for Economic Policy Research. Many companies plan to extend the option of working at home indefinitely.
I sold our REITS at the end of 2019 after about 20 years. Did very well. Now that I look at real estate, about 25% of the Vanguard REIT fund is Office, Retail, and Hospitality (Hotels). In my opinion, Hotels will come back over time for both business and leisure travel. It is the Office and Retail that concern me. Retail was changing over the years permanently and COVID accelerated that permanent shift. However, the shift has result in a demand and bull market for industrial and warehouses.

Office, by some arguments, may have been experiencing a shift too with technology and remote work. I think many of the office parks will need to be redeveloped into multi use properties which includes office, hotel, retail, multi-family. There were many articles in REIT magainze a couple of years ago on this multi use that I found interesting. There is demand for that in urban areas. Locally, our area has developed many of these multi use projects and they are very popular.

Data and Cloud storage facilities are a huge growth area. So is multi family apartments.

So do I think it is the quote “death” of real estate and REITS? Not by a long shot. I think it is a shift within the real estate and REIT industry.

Investors will probably be well rewarded over time.
Agree... not the "death" though something to keep an eye on in my opinion.

Not far from where I live is where one of Facebook's DR facilities is located. It consists of more than a dozen very large BUILDINGS chocked full of their custom rack-mounted servers, cutting edge top of rack (TOR) design, oodles of storage, crazy HVAC & power redundancy, etc. That sort of industrial space is definitely a growth industry.

The spouse of a good friend of mine joined the executive team of an REIT a while back. They are literally making money hand over fist. Is it an over-inflated market? Not sure but maybe... I'm happy continuing to move in the direction of simplifying to a three fund strategy after many years of more active trading with some of my holdings.

I still more than dabble in semi-speculative gambles (FROG, NET, NIO, NVDA, SPCE, SQ, to name a few) that are too good to be true. I'm applying KlangFool's recommendation and selling 50% on those that are +3x and leaving the rest to keep riding the Bulls :D
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

CycloRista wrote: Fri Oct 16, 2020 5:45 am
tenkuky wrote: Wed Sep 30, 2020 6:22 pm I own FSRNX (FIDELITY REAL ESTATE INDEX FUND) a small position in my 403b.
I just noticed it is down 19% YTD.
I am not sure what gives, can't be dividend payout, and Vanguard's VNQ/VGSLX is down only 10-12% in same period.
What am I missing when comparing 2 index REIT funds? Fido ER is slightly better so can't be expenses.
They did change the tracking index for FSRNX but a 7% difference is strange.
Thanks in advance!
Nobody knows...

I'd venture to guess that commercial real estate will continue sinking due in part to less demand over time from so many in the workforce set to permanently work remotely. Some estimates put it at 10-20% or higher that will no longer be sitting in cubeville, offices or idiotic open floor plan spaces.

Once more of the multi-year real estate leases come up for renewal, there will be a tsunami of commercial space available.
This generalization in not correct and part of the “problem” with many “real estate” discussions, including direct investing, crowdfunding, and REITS, is everything is lumped into “real estate”. Much like any other industry or sector, there are sub sectors. I have invested in REITS for 20 years, both individually and then index funds. I had REIT magazine appearing in my mailbox for years, and listened to REIT conference calls. REITS books by Ralph Block on my shelf. Yes, that was my REIT life and I learned tons!

There are three sub sectors currently experiencing stress: 1) office, 2) retail, and 3) hospitality / hotel.

Retail (and to a small and slower extent, office) was already undergoing structural changes. E-Commerce was moving in one direction which was resulting in the retail footprint undergoing stress and changing. However, E-Commerce has resulted in a huge demand for industrial & warehouse. Those REITS are doing very well. Office was undergoing changes previous to COVID due to a larger technology disruption.

In looking at redeveloping retail REITS into “multi use” this trend is very popular and gaining. A lot of articles in REIT magazine on this. REITS are becoming more hybrid with multi use properties that may include hotel and / or convention centers, or perhaps an upscale shopping district. This will include multi-family as well. Massive massive demand for this. Locally we are seeing this as well in many locations.

Data storage and cell tower REITS are seeing amazing demand. In fact American Tower (think mobile data and now 5G) is the largest REIT in the US by market capitalization.

Industrial ‘ Warehouses are being built everywhere. Distribution centers related to e-commerce and other business lines are in demand. Prologis is an excellent warehouse company.

In terms of individual real estate, there are a few single family home REITS which are scaling and I expect this to only continue. Related to multi-family (and ignoring College Campus REITS), apartments are very popular and only increasing (with a decrease in single family ownership decreasing or happening later in life). The young generations want apartments and thus fits with the transition to a “renters society”.

As one can see a generalization of “real estate”, with an examples of an office building or a local mall, is not truly representative to the larger real estate industry when considering the various sub sectors.

REITS have done well over the long term. The trend in owning real estate is clearly resulting in more REITS being established rather than companies and wealthy individuals having capital locked up in a single building(s) and homes. I expect that to continue.

I think an investor in REITS over the long term will do just fine. When they move, they move. Along the way, investors are collecting a nice 3.60% yield in cash flows from rents.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

CycloRista wrote: Sat Oct 17, 2020 9:54 am
Agree... not the "death" though something to keep an eye on in my opinion.

Not far from where I live is where one of Facebook's DR facilities is located. It consists of more than a dozen very large BUILDINGS chocked full of their custom rack-mounted servers, cutting edge top of rack (TOR) design, oodles of storage, crazy HVAC & power redundancy, etc. That sort of industrial space is definitely a growth industry.

The spouse of a good friend of mine joined the executive team of an REIT a while back. They are literally making money hand over fist. Is it an over-inflated market? Not sure but maybe... I'm happy continuing to move in the direction of simplifying to a three fund strategy after many years of more active trading with some of my holdings.

I still more than dabble in semi-speculative gambles (FROG, NET, NIO, NVDA, SPCE, SQ, to name a few) that are too good to be true. I'm applying KlangFool's recommendation and selling 50% on those that are +3x and leaving the rest to keep riding the Bulls :D
There are Core Four portfolios by Rick Ferri, that include Total Stock, Total International Stock, REITS, and Total Bond, that you may want to consider.

I am not as worried with REITS and never have been. One of the biggest reasons is REITS are backed by hard assets.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nedsaid »

nisiprius wrote: Fri Oct 16, 2020 6:08 am Apparently, Fidelity did a near-perfect job of tracking its index. Fidelity's main web page for FSRNX says it tracks the Dow Jones U.S. Select Real Estate Securities Index, and that's the index Morningstar says it is plotting:

Source

Image

Meanwhile, the Vanguard Real Estate Index Fund, VGSIX/VGSLX, tracks the MSCI US Investable Market Real Estate 25/50 Index. Morningstar only has that index back to 8/31/2016, but that's long enough to include the plunge, and, interestingly, Vanguard actually underperformed its index:

Source

Image

So whatever the explanation, Vanguard tracked a better-performing index, and fell short--yet still beat Fidelity, which faithfully followed a worse-performing index.

So, three on a chart. Orange is Vanguard's index, blue is Vanguard's actual fund, and green is Fidelity's FSRNX. I don't know how to trick Morningstar into showing us both indexes, but we know already that Fidelity tracked its index almost perfectly.

Image

I had tended to think that it didn't usually matter what index an index fund was following, but I have to revise that. It's only true for asset classes whose definitions and boundaries are obvious; the narrower and more arcane the asset classes, the greater a difference it makes where the index provider draws the boundaries. I'm thinking it must have been a time when investing in real estate was very tricky and that even though Vanguard is tracking an "Investable Market" index, maybe the market wasn't really as investable as an index fund manager would want it to be?
My gosh, now we spend our time Index picking.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

Notable is Vanguard’s Real Estate fund does not include mortgage REITS. Does Fidelity? Huge difference as mortgage REITS act and are structured more like finance companies as they do not own physical properties.
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Re: What happened to Fidelity Real Estate Index fund?

Post by lifeisinmirrors »

In my opinion, the REIT tax structure is a bizarre thing to index. Companies in the real estate industry choose whether or not to operate with this tax structure based on the best advice of their tax and managerial accountants. A REIT index fund essentially substitutes its own judgment that every company should operate as a REIT, and further judges that converting to a C Corp is a poor decision that automatically results in a sale of the company. It is a cheap passive management style that may or may not outperform, but really violates the general purpose of an index fund.
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Re: What happened to Fidelity Real Estate Index fund?

Post by nisiprius »

abuss368 wrote: Sat Oct 17, 2020 11:18 am...There are three sub sectors currently experiencing stress: 1) office, 2) retail, and 3) hospitality / hotel... Data storage and cell tower REITS are seeing amazing demand. In fact American Tower (think mobile data and now 5G) is the largest REIT in the US by market capitalization...
And I think this is the answer to tenkuky's question. FSRNX and VGSIX/VGSLX/VNQ track significantly different indexes with significantly different holdings, and FSRNX holds more of the sub-sectors abuss368 says are "currently experiencing stress," while VGSIX/VGSLX/VNQ holds more of the sub-sectors abuss368 says are currently "seeing amazing demand."

In particular, Vanguard is holding American Tower, and Fidelity isn't.

This doesn't prove that one fund/index or the other is "better" in the sense of "will always be better," but it seems to explain the recent past.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

lifeisinmirrors wrote: Sat Oct 17, 2020 3:20 pm In my opinion, the REIT tax structure is a bizarre thing to index. Companies in the real estate industry choose whether or not to operate with this tax structure based on the best advice of their tax and managerial accountants. A REIT index fund essentially substitutes its own judgment that every company should operate as a REIT, and further judges that converting to a C Corp is a poor decision that automatically results in a sale of the company. It is a cheap passive management style that may or may not outperform, but really violates the general purpose of an index fund.
Not sure I follow that! So the REIT law was passed in the 1960’s on the back of a milk (yes milk) bill. Dormant for many years until Sam Zell (aka “The REIT King) took off with it. The REIT bill was structured to replicate direct real estate investing from a tax standpoint so “the little” guy would not be shut out of real estate investing.
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Re: What happened to Fidelity Real Estate Index fund?

Post by abuss368 »

nisiprius wrote: Sat Oct 17, 2020 3:50 pm
abuss368 wrote: Sat Oct 17, 2020 11:18 am...There are three sub sectors currently experiencing stress: 1) office, 2) retail, and 3) hospitality / hotel... Data storage and cell tower REITS are seeing amazing demand. In fact American Tower (think mobile data and now 5G) is the largest REIT in the US by market capitalization...
And I think this is the answer to tenkuky's question. FSRNX and VGSIX/VGSLX/VNQ track significantly different indexes with significantly different holdings, and FSRNX holds more of the sub-sectors abuss368 says are "currently experiencing stress," while VGSIX/VGSLX/VNQ holds more of the sub-sectors abuss368 says are currently "seeing amazing demand."

In particular, Vanguard is holding American Tower, and Fidelity isn't.

This doesn't prove that one fund/index or the other is "better" in the sense of "will always be better," but it seems to explain the recent past.
Exactly, one index (and fund) is performing a little better because of the current environment.
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Re: What happened to Fidelity Real Estate Index fund?

Post by Oregano »

alex_686 wrote: Fri Oct 16, 2020 7:39 pm
Oregano wrote: Sat Oct 03, 2020 9:52 am Vanguard's Real Estate funds used to be REIT funds, but they changed the mandate a couple years ago to be just RE and no longer just REITs. So the holdings are different than pure REIT funds.
Note, you can't have a pure REIT fund, thus any fund claiming to be one is lying. If one were to have a pure REIT fund it could only hold REITs. Companies can't declare themselves REITs for 2020 until March/April (or even latter....) of 2021. Nobody has a crystal ball that can see in the future, not even index managers.
You're getting into real technical quibbles here. A pure REIT fund invests in companies that are known to be REITs at any given time. If a company changes it's status to longer be a REIT, it will be removed. Schwab U.S. REIT ETF (SCHH) and iShares Core U.S. REIT ETF (USRT) are examples or pure REIT funds, if you ask me or anyone who isn't creating an unrealistic standard.
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