Hello friends,
Like many of you, I am invested in Vanguard's REIT index fund (ETF: $VNQ). It seems to have the lowest expense ratio out there, and like many of you I trust the Vanguard brand, so that's where I park my monies.
Last month shareholders voted to change the composition of the Vanguard REIT fund away from being specifically in REITs into a broader approach that invests in all of Real Estate. You can read the changes here: http://ift.tt/2ldJkGO
Here's an article from Bloomberg that conveys these changes: "A $35 Billion ETF Is Making Changes That May Rile Fans of Yield" http://ift.tt/2lm7deC
In short, it seems like Vanguard wanted to diversify their REIT fund into real estate that isn't just REITs. So that would include a new 5% holding (soon to be the largest holding of the fund) in American Tower ($AMT), a company whose real estate is used for the communication industry (antennae and cellular tower sites). Or a new 3.5% holding of Crown Castle ($CCI) that also serves the communications industry.
Anyways, this has got me struggling with my holding. This is because my REIT allocation is used for one particular purpose: diversification from typical stocks. I don't hold any other sector stocks like an Energy ETF or a Technology ETF. I divide up my portfolio strictly by large/small cap and domestic/international. That's it. Yet I made an exception for a REIT allocation, on the advice of smart people like Paul Merriman, who is part of the crowd who believes that REITs can serve to be a special slice of one's portfolio because of how uncorrelated they are with the rest of the market (see this Merriman graphic with the special REIT slice in purple: http://ift.tt/2lbBgX5).
The problem is that the new version of Vanguard Real Estate fund seems like it will include a bunch of publicly traded stocks that aren't REITs. So it seems like it will have a new and unfortunate correlation with funds like the S&P 500, which is exactly what I was trying to avoid. What's the point of "diversifying" into a Real Estate ETF if it is just going to be another sector weighting, like people who add a slice of consumer discretionary or some other sector?
Anyways, would love your guys thoughts. I think I read somewhere that Vanguard may create a "Real Estate II" fund that preserves the original REIT-only approach, so I'll probably switch to that if they do. Otherwise, I may have to move my funds to a non-Vanguard REIT fund -- unless you guys suggest otherwise.
Submitted December 28, 2017 at 11:41AM by ThePastIsPrelude http://ift.tt/2lmqDQr
