Are you adjusting your REIT Allocation?

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garlandwhizzer
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Re: Are you adjusting your REIT Allocation?

Post by garlandwhizzer » Tue Jul 28, 2020 2:06 pm

grok 87 wrote regarding Vanguard's REIT Fund yield:

thanks. interesting article. only quibble is that the yield is not really 4%ish.
per vanguard's website the true yield is 2.8%
from Vanguard REIT SEC Yield:

The current unadjusted effective yield is 3.73% as of 06/30/2020, which is based on the full amount of REIT distributions (dividend income, as well as return of capital and capital gain).

The current adjusted effective yield is 2.82% as of 06/30/2020. The adjusted yield reflects a reduction in the income included in the yield based on the average return of capital and capital gain distributions received from the fund's REIT investments for the past 2 calendar years. (These percentages are 25.70% for 2018 and 25.16% for 2017.)
The 2.82% figure is reduced from the 3.73% yield based on "the average return of capital and capital gains distributions" over the past 2 years. If you look under the heading of Distributions for the fund, the last 4 quarters of dividend income excluding capital gains and return of capital over those specific 4 quarters produced a 3.4% yield in pure dividends ($3.78) based on the current price of REIT Admiral shares ($112/share). Not a big deal but in this no yield environment 3.4% looks pretty good, reflecting a lot of investor pessimism about REITs due to Covid-19. Interestingly, the opposite of this pessimism is currently reflected in prices of TSLA and AMZN.

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grok87
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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Tue Jul 28, 2020 2:27 pm

garlandwhizzer wrote:
Tue Jul 28, 2020 2:06 pm
grok 87 wrote regarding Vanguard's REIT Fund yield:

thanks. interesting article. only quibble is that the yield is not really 4%ish.
per vanguard's website the true yield is 2.8%
from Vanguard REIT SEC Yield:

The current unadjusted effective yield is 3.73% as of 06/30/2020, which is based on the full amount of REIT distributions (dividend income, as well as return of capital and capital gain).

The current adjusted effective yield is 2.82% as of 06/30/2020. The adjusted yield reflects a reduction in the income included in the yield based on the average return of capital and capital gain distributions received from the fund's REIT investments for the past 2 calendar years. (These percentages are 25.70% for 2018 and 25.16% for 2017.)
The 2.82% figure is reduced from the 3.73% yield based on "the average return of capital and capital gains distributions" over the past 2 years. If you look under the heading of Distributions for the fund, the last 4 quarters of dividend income excluding capital gains and return of capital over those specific 4 quarters produced a 3.4% yield in pure dividends ($3.78) based on the current price of REIT Admiral shares ($112/share). Not a big deal but in this no yield environment 3.4% looks pretty good, reflecting a lot of investor pessimism about REITs due to Covid-19. Interestingly, the opposite of this pessimism is currently reflected in prices of TSLA and AMZN.

Garland Whizzer
thanks.
so said another way, for the last 4 quarters capital gains and return of capital were only 9% of the 3.73% (i.e. 1-3.4/3.73) vs. 25% for 2018 and 2019

i agree the yield on reits seems tempting. note that they are up big today with bonds
RIP Mr. Bogle.

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sleepysurf
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Re: Are you adjusting your REIT Allocation?

Post by sleepysurf » Tue Jul 28, 2020 3:56 pm

Another "upbeat" article about REIT's published today... https://www.barrons.com/articles/future ... 1595960303

Not sure if this is behind a paywall, so here's an excerpt...
While real estate will likely continue to be volatile, Citi’s tactical investment shift—which looks out 12-to-18 months—accounts for the fact current valuations don’t “reflect proper pricing for certain real estate assets,” says Joseph Fiorica, head of global equity research at Citi Private Bank.

Also, by investing in REITs, investors can diversify their portfolios away from the large tech and communications names dominating the broad market.

REITs “are a way to play the U.S. economic recovery and global economic recovery without being too concentrated in the Microsofts of the world, and to add to portfolio yield on top of that while we wait for that recovery,” Fiorica says.
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ColoRetiredGirl
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Re: Are you adjusting your REIT Allocation?

Post by ColoRetiredGirl » Wed Jul 29, 2020 8:59 am

Robot Monster wrote:
Mon Jul 27, 2020 8:29 am
zonto wrote:
Sat Jul 11, 2020 1:17 pm
...I increased my global REIT and real estate allocation from 14% to 20% on April 24.
Global REIT is interesting. In a 2015 article entitled "3 Investment Gurus Share Their Model Portfolios", Gretchen Tai recommends a 5% allocation to that.

https://www.npr.org/2015/10/17/43699364 ... portfolios

Vanguard Global ex-U.S. Real Estate ETF (VNQI) is 13.6% China, and 10.2% Hong Kong. Not sure how I feel about that. Unsure about Hong Kong, but I'm pretty I've heard about lots of speculative real estate investing going on in China. Doing a quick search I find,

The $52 Trillion Bubble: China Grapples With Epic Property Boom - WSJ - The Wall Street Journal
https://www.google.com/url?q=https://ww ... Hts9Tep0-W_
Can you summarize this article for those who do not subscribe to WSJ? Thank you!

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Re: Are you adjusting your REIT Allocation?

Post by Robot Monster » Wed Jul 29, 2020 9:24 am

ColoRetiredGirl wrote:
Wed Jul 29, 2020 8:59 am
Robot Monster wrote:
Mon Jul 27, 2020 8:29 am
zonto wrote:
Sat Jul 11, 2020 1:17 pm
...I increased my global REIT and real estate allocation from 14% to 20% on April 24.
Global REIT is interesting. In a 2015 article entitled "3 Investment Gurus Share Their Model Portfolios", Gretchen Tai recommends a 5% allocation to that.

https://www.npr.org/2015/10/17/43699364 ... portfolios

Vanguard Global ex-U.S. Real Estate ETF (VNQI) is 13.6% China, and 10.2% Hong Kong. Not sure how I feel about that. Unsure about Hong Kong, but I'm pretty I've heard about lots of speculative real estate investing going on in China. Doing a quick search I find,

The $52 Trillion Bubble: China Grapples With Epic Property Boom - WSJ - The Wall Street Journal
https://www.google.com/url?q=https://ww ... Hts9Tep0-W_
Can you summarize this article for those who do not subscribe to WSJ? Thank you!
Here is an extract,

"...The resulting asset bubble, many economists say, now eclipses the one in U.S. housing in the 2000s. At the peak of the U.S. property boom, about $900 billion a year was being invested in residential real estate. In the 12 months ended in June, about $1.4 trillion was invested in Chinese housing. More was invested last month in Chinese real estate than any other month on record. The total value of Chinese homes and developers’ inventory hit $52 trillion in 2019, according to Goldman Sachs Group Inc., twice the size of the U.S. residential market and outstripping even the entire U.S. bond market."

Here's another article you should be able to access,
https://seekingalpha.com/article/435945 ... your-radar
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

staustin
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Re: Are you adjusting your REIT Allocation?

Post by staustin » Wed Jul 29, 2020 10:16 am

For intellectual stimulation mostly, I allocate a small amount of our overall portfolio to speculative purchases. Generally over the last three down cycles, purchasing a select number of stocks in beaten down sectors. This time around it's small REITs. I've been purchasing apartment and grocery anchored REITs every two weeks vis retirement account. A good number of them have excellent management, 25 year plus track records, strong balance sheets. Most were 50% off from a year prior. We'll see. As I said it's just for fun. Otherwise we are invested in low cost index funds. Regarding the op's question i'd steadily be building back a 5% allocation. The courage of your plan / convictions is most important to buy when deep discount sales are on offer.

JimmyD
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Re: Are you adjusting your REIT Allocation?

Post by JimmyD » Wed Jul 29, 2020 12:21 pm

We were at 10% REITs mostly through our investment in VGSLX.

The fallout from the pandemic and the run from May-June of this year prompted me to exchange out of it in favor of VTSAX, but I didn't get a chance to completely eliminate it from our portfolio. I'm watching VNQ and if it continues to recover and gets close to a positive return YTD, I'll be fully divesting.

I'm good holding market weight in REITs from this point forward.

grok87
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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Wed Jul 29, 2020 2:55 pm

grok87 wrote:
Tue Jul 28, 2020 12:55 pm


re the YTD return, the vanguard reit fund VGLSX is down 15% ytd. the CPPI index for commercial real estate that Greenstreet calculates is down 11.3%
one might suspect stock valuations account for the difference. but again per greenstreet reits are trading at a similar premium to NAV now as compared to january 1 (7% vs. 8% at jan1). I think the difference between the 11% and the 15% is leverage- i.e. the average reit may be levered 1.5:1.

cheers
grok
so i've been digging in before. above i had guessed that the average (equity) reit might be levered 1.5:1, i.e. 1.5 dollars of assets per 1 dollar of equity.
If i'm doing the math right on this source for the NAREIT association i actually get 1.46:1- i.e. very close to my guess>

https://www.reit.com/data-research/reit ... l-snapshot

debt/assets = 31.4%
---> equity/assets = 68.6% (i.e. 1-31.4%)
----> assets/equity = 1.46x

another way to say all this (i think) is that assuming no bankruptcy scenario one can defease the leverage in REIT by holding a corresponding amount of bonds- say treasuries.

So if you hold $100 market value of REITS (assuming trading at or close to NAV as today) then one can think of that as $150 of real estate and $50 of "debt that the reits issue". So if you wanted to defease that debt you could pair your $100 Market value of reits with $50 of treasuries. It would be an interesting exercise to compute the time series returns of that pairing. YTD the figures loos like this:

$100 of VGSLX (vanguard reit fund): YTD return(%) = -11.76% = -$11.76
$50 of VSIGX (vanguard int treasuries) = 8.16% = $4.08
$150 combined: $ return = -$7.68 = -5%

will be interesting to compare that to the CPPI commercial real estate price index at then end of july.
for reference the TIAA fund QREARX is down -1.3% YTD.
RIP Mr. Bogle.

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sleepysurf
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Re: Are you adjusting your REIT Allocation?

Post by sleepysurf » Wed Jul 29, 2020 3:53 pm

tomd37 wrote:
Tue Jul 28, 2020 10:55 am
Just throwing this out for thought. I have read that, in an interview with Christine Benz of Morningstar during the November 2013 Bogleheads Conference, Rick Ferri stated that commercial real estate represents 13 to 14 percent of our GNP. I believe he said adding about 10 percent of your stock equity in REITs would not be unreasonable if you were so inclined. I believe he favors the REIT index fund. Each to his own to meet their goal.
I wanted to fact check the percentage of U.S. GDP contributed by Real Estate, and found this source, which confirms the ~13% number cited...
https://www.bloombergquint.com/business ... s-top-gear

However, I'm not certain if Rick Ferri still recommends a hefty allocation to REIT's.
Retired 2018 | ~50/45/5 (partially sliced and diced)

hale2
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Re: Are you adjusting your REIT Allocation?

Post by hale2 » Wed Jul 29, 2020 9:39 pm

sleepysurf wrote:
Wed Jul 29, 2020 3:53 pm
tomd37 wrote:
Tue Jul 28, 2020 10:55 am
Just throwing this out for thought. I have read that, in an interview with Christine Benz of Morningstar during the November 2013 Bogleheads Conference, Rick Ferri stated that commercial real estate represents 13 to 14 percent of our GNP. I believe he said adding about 10 percent of your stock equity in REITs would not be unreasonable if you were so inclined. I believe he favors the REIT index fund. Each to his own to meet their goal.
I wanted to fact check the percentage of U.S. GDP contributed by Real Estate, and found this source, which confirms the ~13% number cited...
https://www.bloombergquint.com/business ... s-top-gear

However, I'm not certain if Rick Ferri still recommends a hefty allocation to REIT's.
I asked Rick in his "Portfolio is like a birthday cake" posting and didn't get a clear answer. I basically asked if REITs were still pertinent since they weren't considered a major part of that posting but are major parts of his Core 4. I'd link the post but don't know how to do it.

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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Wed Jul 29, 2020 9:46 pm

Jack Bogle has said most investors could go their investment lifetime without a need for a sector fund.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

rockstar
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Re: Are you adjusting your REIT Allocation?

Post by rockstar » Wed Jul 29, 2020 9:53 pm

I increased my REIT allocation to just over 10% in March.

Dominic
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Re: Are you adjusting your REIT Allocation?

Post by Dominic » Thu Jul 30, 2020 12:11 am

sleepysurf wrote:
Mon Jul 27, 2020 7:02 am
Here's an interesting perspective on Vanguard's domestic REIT index... https://moneyandmarkets.com/reits-not-y ... al-estate/

The author is Charles Sizemore, CFA, who runs an investment advisory firm in Dallas. Here's an excerpt from the article...
Here’s a breakdown of VNQ’s portfolio:

8.8%: Retail REITs.
8.2%: Office REITs.
2.5%: Hotel and resort REITs.
80.5%: Properties that are pretty close to COVID-proof.
I'm feeling quite comfortable maintaining my 5% REIT tilt (split between Roth/IRA).
It holds 40.8% specialized REITs, which include movie theaters. (They also own farmland, so it's not all bad.) Also invests 8.3% of its portfolio in healthcare REITs, which might suffer slightly from the rise of telemedicine.

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Re: Are you adjusting your REIT Allocation?

Post by NoRegret » Thu Jul 30, 2020 2:56 am

mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
I’ve been looking at some residential mortgage REITs, not interested in REITs as a whole. This is for my active strategy, not as an equity tilt.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade

grok87
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Re: Are you adjusting your REIT Allocation?

Post by grok87 » Thu Jul 30, 2020 5:17 am

NoRegret wrote:
Thu Jul 30, 2020 2:56 am
mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
I’ve been looking at some residential mortgage REITs, not interested in REITs as a whole. This is for my active strategy, not as an equity tilt.
interesting. what about them is attractive? the yield?
RIP Mr. Bogle.

garlandwhizzer
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Re: Are you adjusting your REIT Allocation?

Post by garlandwhizzer » Thu Jul 30, 2020 6:20 pm

NoRegret wrote:

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.
Good point. Cleary there is a lot of risk in commercial real estate in the Covid-19 crisis. The question is: Is that risk currently baked into REIT prices which have suffered more than for example TSM. Especially so in LCG tech which has actually skyrocketed in price. Today in after hours trading after favorable earnings reports, 4 tech titans went up by 5+% on a day when it was reported that the GDP growth last quarter declined 32.9%. The same day that SCV as measured by IJS declined -1.24%. The price swing between FB (LCG) and IJS (SCV) was more than 8% in one day between these two.

The question of course is have we fallen too deeply in lover the the tech titans which comprise 27% of TSM? Those tech darlings (include ZOOM. Moderna in that group) have business models that are relatively immune to lockdown, in fact may do better in lockdown. They are the only current source of reliable growth when lockdown/work for home is killing bricks and mortar and traditional companies. There appears to be no end on the horizon to LCG/tech dominance which is why they just keep going up and up more.

One of the biggest problems investors tend to make IMO is to assume that what's going on now in the market and the economy is going to continue unabated going forward. Both bull and bear markets tend to overshoot for this reason. The question that presents itself now is what happens when a safe and effective vaccine becomes widely available? I suspect that the beaten down cheap sectors that have done so poorly like including value, SC, REITS will rise from their graves. At that point there will be a lot of pent up demand, increasing employment numbers, and higher profits in these beaten down sectors. Tech will no longer be the only source of reliable profit growth. I don't know when that will happen but it could happen in the next 6 - 12 months. At that point investors may start taking a harder look at valuations, how much they pay for a dollar of profit. How well you do with an investment is heavily impacted by how much you pay for it when you buy it. I could be dead wrong on this but I am not going to pay $771 to get $1 of TSLA profits (PE ratio 771). I think it's a good idea for a portfolio to have all bases covered including the ones that have long suffered.

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Re: Are you adjusting your REIT Allocation?

Post by SemiRetire » Thu Jul 30, 2020 6:30 pm

mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
I have kept my allocation the same, only change made recently feb/March was to take 0.5 percent from each of 6 stock classes, one of which is US REIT and put 3 percent in silver, already having 10 percent gold.

I would stay the course. I have been going up gradually in precious metals since 2013. Currently 10 percent gold, plus 3 percent silver. US reit is like 10.5 percent or something.

Basically if I feel the need to change something, I talk to friends family about it, and/or on here, and then I do nothing, then if I feel the same way 6-12 months later I make some small Change. Maybe. Also, to change anything, it has to be against the human grain adding things that have spiked recently, or getting rid of things that have gone down recently. That is the way humans screw themselves.

I have not felt bad about REITs but I have not tracked how they are doing either. Something has to suck if you are diversified : )

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Re: Are you adjusting your REIT Allocation?

Post by NoRegret » Thu Jul 30, 2020 9:05 pm

grok87 wrote:
Thu Jul 30, 2020 5:17 am
NoRegret wrote:
Thu Jul 30, 2020 2:56 am
mojorisin wrote:
Fri Jul 10, 2020 9:08 am
My current allocation is

60% equities (40% US / 20% INTL)
35% Bonds (MUNI / BND)
5% REIT

My rebalance "band" is telling me to add more to REIT. However looking at the Covid impact on commercial real estate, I'm wondering if I should shrink my current REIT allocation smaller.

I'm not asking to speculate on REIT (although if you have a crystal ball please share).

More of a question if you are modifying your allocation.
I’ve been looking at some residential mortgage REITs, not interested in REITs as a whole. This is for my active strategy, not as an equity tilt.
interesting. what about them is attractive? the yield?
Sure, and the fact that the Fed is buying MBS.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade

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Re: Are you adjusting your REIT Allocation?

Post by abuss368 » Thu Jul 30, 2020 9:36 pm

Investors may be looking as REITs again as we move forward in this low interest rate environment.
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Re: Are you adjusting your REIT Allocation?

Post by grabiner » Sat Aug 01, 2020 12:55 pm

I adjust my REIT allocation only to rebalance; REITs have been 10% of my portfolio since 2002, although they became 5% US and 5% foreign when Vanguard created the Global Real Estate fund. Usually, the rebalance happens when I make my IRA contribution in January; if I am underweighted in REITs, the contribution goes to a REIT fund (and I might also sell something else to buy more REITs), and if I am overweighted in REITs, the contribution goes to a value fund, which is the other thing I hold in my IRA. I have rebalanced out of cycle only once, in September 2009, when the recovery from the 2008-2009 crash had put my REIT allocation over 15%.
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