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Are Reits a sector of the market?

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  • Are Reits a sector of the market?

    Are Reits a sector of the market and if so why are they the current flavor to overweight?

     

     

  • #2
    They're a sector like any other - financial, utilities, energy, etc.  They just happen to specifically focus in real estate of different varieties.  No idea why people overweight REITs other than to decrease volatility in their stocks.  It's not like people don't have exposure to real estate otherwise through bonds funds, the financial sector, etc., etc., etc.

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    • #3
      yes they are a sector.

      you should read about Rick Ferri and Core 4.

      they are not the current flavor.

       

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      • #4




        They’re a sector like any other – financial, utilities, energy, etc.  They just happen to specifically focus in real estate of different varieties.  No idea why people overweight REITs other than to decrease volatility in their stocks.  It’s not like people don’t have exposure to real estate otherwise through bonds funds, the financial sector, etc., etc., etc.
        Click to expand...


        It seems that it is listed as a sector more recently.  Where it used to be 10 sectors now RE makes 11.  That is the question I am asking.  Why are people overweighting it when they already have exposure in there total stock fund.  I do not hear about many people talking about Energy or utility funds but I hear a lot of people hold Reits.

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        • #5




          yes they are a sector.

          you should read about Rick Ferri and Core 4.

          they are not the current flavor.

           
          Click to expand...


          I have never read his work before.  This is his reasoning for having REITs.

          " It’s included as a separate asset class because the commercial real estate market is a large part of the economy but only a small fraction of the stock market."

          I still do not see the advantage.  You are taking a gamble that this particular sector is going to outpace the others.  Why complicate things?  Looks like he floated this idea on Bogleheads in 2007.  Ouch.

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          • #6







            yes they are a sector.

            you should read about Rick Ferri and Core 4.

            they are not the current flavor.

             
            Click to expand…


            I have never read his work before.  This is his reasoning for having REITs.

            ” It’s included as a separate asset class because the commercial real estate market is a large part of the economy but only a small fraction of the stock market.”

            I still do not see the advantage.  You are taking a gamble that this particular sector is going to outpace the others.  Why complicate things?  Looks like he floated this idea on Bogleheads in 2007.  Ouch.
            Click to expand...


            They don't beat the TSM historically - especially in a taxable account.  They are less volatile (lower beta) than the TSM.

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            • #7
              They are now, its a recent addition to the SP.

              They became popular the same way everything else does, they have performed really well in the most recent past. Just the typical chasing of performance.

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              • #8
                Of course it's a bet. Anything not market weight is a bet.

                I hold extra REITs as I choose to compensate for not owning any physical real estate. They are in my stock allocation.

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                • #9




                  Of course it’s a bet. Anything not market weight is a bet.

                  I hold extra REITs as I choose to compensate for not owning any physical real estate. They are in my stock allocation.
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                  Interesting idea.  I do not figure my home equity in my portfolio because it is not something I would invest in if I did not live there.  I do consider it part of my net worth because it has value but fully view it as a consumption item and do not consider it as part of my retirement money. True I could sell it and get a cheaper place but since I do not have a very expensive place to begin with it pales in comparison to the rest.  I get it for the VHCOL people who sell a 2MM home and move to AZ and by a 500K home.

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                  • #10
                    Keep in mind that if you are tilting to small and value you are most likely already overweighting real estate.

                    Vanguard's small-cap value ETF is 12.6% real-estate, whereas the TSM is between 3.5-4%.

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                    • #11
                      It also seems as though some overweight REITS as a dividend play, although the “dividend” includes return of capital. Now, just me, but I don’t see enough value in that to justify the fluctuations in market value.

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                      • #12




                        Of course it’s a bet. Anything not market weight is a bet.

                        I hold extra REITs as I choose to compensate for not owning any physical real estate. They are in my stock allocation.
                        Click to expand...


                        I think it is very hard to effectively compensate with REITS. I tried to do this for a portion of my RE exposure in 2012-2015. What I found that was the REITS did not appreciate as much as the physical real estate I was hedging, after accounting for leverage. The REIT return was much inferior to a 40% levered direct exposure in my case, despite the REITS already being levered.

                        My new motto : "never hedge with a REIT". The not uncommon exception can get you.

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                        • #13
                          If you follow Bernstein you will see he has around 3-5% REIT's in his portfolios, in addition to total stock or S&P.  REIT's are sensitive to interest rates: https://www.reit.com/investing/reits-and-interest-rates

                          In a rising interest rate environment (unclear) along with rising rents and property values it's not surprising that investors are interested in REIT's

                           
                          It's psychosomatic. You need a lobotomy, I'll get a saw.

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                          • #14




                            Keep in mind that if you are tilting to small and value you are most likely already overweighting real estate.

                            Vanguard’s small-cap value ETF is 12.6% real-estate, whereas the TSM is between 3.5-4%.
                            Click to expand...


                            Good thing to think about because I hear a lot of people tilting that way.

                            I do not tilt.  Unless you consider that i am tilting towards a national bias since I have 80% US and only 20% international.

                            I see tilting as another way of speculation.  But it is a way that us indexers do not get up in arms about.

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