Author Topic: REIT/Real Estate ETFs  (Read 881 times)

Ethel

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REIT/Real Estate ETFs
« on: November 14, 2019, 04:55:52 PM »
I'm currently investing 500 a month in MSCI ACWI am going to increase my saving my 500 next month, so I'm considering where to put that money. I could just double my current savings plan and be done with it, but I've been reading up on the iShares Developed Markets Property Yield UCITS ETF. REITs and real estate funds sound like a good alternative/diversification strategy. Anyone here going that route? Anyone who decided against it? I'd love to hear your reasons.

I know some of the companies in the Property Yield ETF are included in MSCI WI and MSCI ACWI, but they seem like too small a portion to count as proper diversification.

RWD

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Re: REIT/Real Estate ETFs
« Reply #1 on: November 14, 2019, 05:32:42 PM »
There are portfolios that include REITs, for example:
https://portfoliocharts.com/portfolio/rick-ferri-core-four/

Some thought on why you might not want to own REITs:
https://jlcollinsnh.com/2014/05/27/stocks-part-xxii-stepping-away-from-reits/

Rob_bob

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Re: REIT/Real Estate ETFs
« Reply #2 on: November 14, 2019, 07:33:27 PM »
I have REITs in my portfolio, both as individual holdings and in ETF form.  As I'm close to retiring I like the income and since REITs have been doing well this year I also have nice Cap gains too.

Andy R

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Re: REIT/Real Estate ETFs
« Reply #3 on: November 14, 2019, 07:41:27 PM »
REITs used to be all the rage before the global financial crisis (GFC) in 2008.
They produce a great return similar to stocks, and over long stretches have some diversifying effect.

Then the GFC happened.

REITs are highly leveraged and in a financial crisis, they are hit very hard. The broader market in 2008 dropped 50% (which is enormous), but REITs dropped 70%.

Articles stopped being written about how REITs are a great diversifier. I mean they just simply don't appear any more.

And further to that, They were replaced with articles stating that REITs are not useful as a diversifier. The reasons given are

1. Since they are listed on the stock exchange, the movement goes up and down with the market. This is true and especially for major corrections. But over longer periods they still provide some diversifying effect.

2. They are already in the index, so you don't need to add them. Also true. I would like 10% in REITs (and 10% is now the commonly cited max amount you should have) but with 3-4% in the market, adding just 6% doesn't seem like it would make much difference so I don't bother, but that doesn't mean they are necessarily useless.

3. Larry Swedroe wrote an article showing that the returns can be explained by factors (small, value, term) and you can be more effectively invest in those using small & value stocks along with long term debt such as LT bonds, and you can do so without the idiosyncratic risk of investing in those factors all within the single sector of REITs.

My own thoughts are that they are fine to either add or leave out, provided it is kept down to no more than about 10% of the portfolio.

MustacheAndaHalf

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Re: REIT/Real Estate ETFs
« Reply #4 on: November 17, 2019, 01:07:38 AM »
I can trace REITs back a little further.  David Swensen ran the Yale Endowment for years, and did far better than his peers.  He pushed for an allocation of 20% REITs and 20% private equity.  Most people lack access to first-round venture capital funding, so REITs became the takeaway for most people.

Back to OP, are you saying 50% global equities / 50% REITs ?  That's extreme.  The more popular overweight right now is technology, since the big tech companies show no signs of shrinking or losing dominance in a world that increasingly depends on them.  Can you invest less than 500 in one place?  Like 800 in global equities, and 200 in REITs?

Even better, Vanguard offers both U.S. and international REITs, so you could diversify there, too.