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Reit Investing 2017 – Real Estate Investment Trusts (REITs)

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Reit Investing 2017 – Most Popular?

Investing in a REIT gives you access to a liquid diversified portfolio of real estate assets, without the need to manage anything on your own. This makes some of the biggest issues with direct real estate investing like illiquidity, management intensiveness, and the inability to properly diversify, go away completely. Just like with stocks, it is possible to buy a low-cost index fund of REITs.

Referenced in this video:
iShares Core S&P/TSX Capped Composite Index ETF – https://www.blackrock.com/ca/individual/en/products/239837/ishares-sptsx-capped-composite-index-etf?switchLocale=y&siteEntryPassthrough=true
iShares Core S&P Total U.S. Stock Market ETF – https://www.ishares.com/us/products/239724/ishares-core-sp-total-us-stock-market-etf
iShares Core MSCI EAFE IMI Index ETF – https://www.blackrock.com/ca/individual/en/products/251421/ishares-msci-eafe-imi-index-etf
Real Estate Betas and the Implications for Asset Allocation – https://joi.pm-research.com/content/27/1/109
Are REITs a Distinct Asset Class? – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2965146
FTSE Canadian Capped REIT Index ETF (VRE) – https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9559/assetCode=equity/?overview
BMO Equal Weight REITs Index (ZRE) – https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZRE_E.pdf
iShares S&P/TSX Capped REIT Index ETF (XRE) – https://www.blackrock.com/ca/individual/en/products/239843/ishares-sptsx-capped-reit-index-etf
iShares S&P Small-Cap 600 Value ETF (IJS) – https://www.ishares.com/us/products/239775/ishares-sp-smallcap-600-value-etf
Vanguard Small-Cap Value ETF (VBR) – https://investor.vanguard.com/etf/profile/VBR
Vanguard’s Global ex-U.S. Aggregate Bond Index ETF (CAD-hedged) (VBG) – https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9568/assetCode=bond/?overview
S. Aggregate Bond Index ETF (CAD-hedged) (VBU) – https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9567/assetCode=bond/?overview

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28 Comments

  1. S T
    July 27, 2021 at 7:22 am

    I know you think dividends don’t matter but could the low market beta in riets be due to there high dividend distributions? Ie returns are due to management paying investors rather than investors paying out other investors

  2. Lorenz Müller
    July 27, 2021 at 7:22 am

    Scientific bs. Investing isn't about statistics and number crunching.

  3. Charles Dorn
    July 27, 2021 at 7:22 am

    I am overweight REITS but am 100% in equities. Because of the relatively low correlation with equities does this help mitigate my lack of exposure to bonds?

  4. hui qing
    July 27, 2021 at 7:22 am

    thanks so much for your great video content!!

  5. Kyle Lincoln
    July 27, 2021 at 7:22 am

    Fantastic video as always! I was just looking at REITs into my portfolio the other day and this video addressed concerns I was not aware of. Thank you!

  6. Benoit Lebeau
    July 27, 2021 at 7:22 am

    Thx, very informative video! Learned a lot!

    Keep up the good work!

  7. MrScoodles
    July 27, 2021 at 7:22 am

    Can you make a video on the problem with idiosyncratic risk? You don't really explain why it's bad, and although I sort of get it, I think you could make a really helpful video about it.

  8. Stochastic Investing
    July 27, 2021 at 7:22 am

    I don't know how actionable this insight is in today's context. Bond yields are ridiculously low and concerns about inflation have me wary about including them in my portfolio when I could instead opt for REITs (which are likely to be a strong hedge against possible inflation).

  9. hster
    July 27, 2021 at 7:22 am

    A lot of retirees use REITs as a passive income vehicle due to higher payout in a low yield world.

  10. Austen Celeste
    July 27, 2021 at 7:22 am

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  11. Hyperpandas
    July 27, 2021 at 7:22 am

    Would REITs have a place when borrowing to invest? My understanding is you have to invest in things that have a reasonable expectation to generate income for the interest to be tax deductible, which largely rules out small cap value stocks. Or are you still better off just going with dividend stocks and maybe bonds, while leaving REITs out entirely (again, emphasizing the need for income generation)?

  12. Card Mechanic
    July 27, 2021 at 7:22 am

    20% of portfolio in REITs.
    Use instead of bonds.

  13. Kevin Gormley
    July 27, 2021 at 7:22 am

    Ben, Love your views and professionalism. I have read the paper you cite and I am concerned you put to much weight into that one review. I do not know if REITs have a diversification benefit or have an uncompensated risk. The authors appear to wanted to prove that REITs are NOT an asset class and the combination of small value and bonds seemed to fit. What biases do they have? It was only done with US REITS and REITS are still a pretty new asset class. My concern is NOT that you are right or wrong in your presentation but that you seem so sure you are correct by citing just one paper. My own journey has lead me to Fama & French but they are humble to the fact that models are imperfect. If we were stock investors in the 1950s- there was not a great wealth of evidence that stocks would outperform bonds on a risk adjusted basis. It is the persistence across many different markets and different time periods that give us a probabilistic expectation that stocks will outperform bonds. I am interested to learn more about REITS and will talk to DFA about the paper and see if there views are as strong as yours. I appreciate what you do and your quest for evidence of expected returns. Thanks, Kevin

  14. Fernando Arbex
    July 27, 2021 at 7:22 am

    Hello, i want to retire in 2051, what do you think about have 50% in reits (vnq and vnqi) ? Thinking in passive income

  15. Babes Doce
    July 27, 2021 at 7:22 am

    Beware whom you trust in Trusts because not all can be trusted.

  16. a dog
    July 27, 2021 at 7:22 am

    Should people who are still saving up for a home have additional exposure to REITs? Do they correlate more highly with reaching the goal of buying a house if prices rise or fall? Or is it the reverse?

  17. Jus Rarsh
    July 27, 2021 at 7:22 am

    Reits are good defense in a choppy market, and in my experience offer better returns in dividends.

  18. Skilliard
    July 27, 2021 at 7:22 am

    Wouldn't overweighting your exposure to real estate via REITs provide a potential hedge against stagflation? I would think that corporate bonds would be vulnerable to inflation, and equities vulnerable to economic stagnation.

  19. Marcin Sieniek
    July 27, 2021 at 7:22 am

    Great content, @Ben Felix, as usual. How does this apply to private market real-estate deals (private equity, crowd-funding websites etc.)? These deals tend to have 15-20%/year IRR after fees. Is this due to excessive leverage they are taking? Or maybe there is some illiquidity premium? Or a premium from the fact that these are usually available to qualified/accredited investors (at least under the American law)?

  20. Commando303X
    July 27, 2021 at 7:22 am

    Ben Felix's videos and perspective: "Equity E.T.F.; bond E.T.F. Infallible market-efficiency. Oh, and here are a few cherry-picked papers to support what I want to say." Done. On its surface, simple; toward its guts, quite and dangerously simplistic.

  21. Pieter2360
    July 27, 2021 at 7:22 am

    Ben, would it make sense to argue that a diversified equity portfolio contains even more exposure to real estate besides the REIT component itself, through all the land and buildings owned by the other (non-reit) companies?

  22. Pieter2360
    July 27, 2021 at 7:22 am

    Very well explained Ben! And a confirmation for me personally to stick to my super simple global market cap weighted equity portfolio.

  23. Drew
    July 27, 2021 at 7:22 am

    I have VGSLX (REITs) in my Roth. VGSLX has 180 holdings, having an expense ratio of 0.12% It’s top 10 holdings of the 180 holdings make up 46.6% of its total net assets. It’s 10 year return is 8.68%. Do you think this fund is good to have in a Roth IRA? AND do you think it isn’t much correlated to S&P500 or VTSAX (total market) stocks? Or is to to much correlated?

    (I want to be diversified some)

  24. Jean Paul Dupuis
    July 27, 2021 at 7:22 am

    I like a small allocation of VRE in the TFSA for the tax-advantaged yield. In general I assume efficient markets (at least sufficiently efficient at the level of sector ETFs), and prioritize guaranteed returns from tax efficiency. REITs relegate detailed tax accounting headaches directly to holders, so they are a relatively costly/hazardous choice in unsheltered accounts versus more predictable stocks and bonds. Nevertheless most REITs will be held unsheltered. If sector ETFs are presumed efficient, then a REIT's price will be 'fair' in the modal unsheltered case, thus better-than-fair in the sheltered case. This is my solution to becoming a landlord without becoming a landlord.

  25. Jbt Tran
    July 27, 2021 at 7:22 am

    The question remains: Is the small cap value premium through REITs worth the idiosyncratic risk if the only alternative is a Small Cap Value Stock ETF which also comes along with idiosyncratic risk (only US stocks contained) or which is not available at all in many countries?

  26. DP LG
    July 27, 2021 at 7:22 am

    Your channel is brilliant Felix. Thanks for the great education.

  27. Kyrie
    July 27, 2021 at 7:22 am

    VBR is a small cap and not value ETF, wouldn't the poor return of most small cap stocks drag down the excessive return of small cap value stocks?

  28. Alexander J.
    July 27, 2021 at 7:22 am

    Ben, this is brilliant! Thank you so much!