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REITS (VGSIX) as a portfolio diversifier

beebee
edited January 2015 in Fund Discussions
VGSIX quietly had a stellar year (up 30%). It has annualized a 8.4% return over the last 10 years. It was out paced by US Small Cap and US Mid Cap sectors by just 1 % over the last decade. US Mid caps exhibited the lowest volatility of the three. Its the volatility that I wanted to address with this thread that ultimately might lead to help creating an inflation beating portfolio.

Volatility has been one the REIT sector's Achilles heal. I am trying to pair other investments that provides a blended performance that helps lowers year to year volatility. Over the last decade TIPs would have been one pairing option. Going forward their will be more and more investor focus on their attempts to stay ahead of inflation. I believe the two sectors (REITs and TIPs) paired together will provide a better inflation beating performance than owning just TIPs alone.

Here's how the last decade looked.

Three portfolios:
100% VGSIX (Blue Line)
100% TIP (Yellow Line)
A combination of the two, 50% VGSIX & 50% TIP (Orange Line)

image

Comments

  • scott
    Isn't that sort of what Pimco's Inflation Response Multi-Asset fund does?
  • beebee
    scott said:

    Isn't that sort of what Pimco's Inflation Response Multi-Asset fund does?

    Cool...have to familiarize myself with the fund. Thanks.

    Some REIT articles:

    will-rising-rates-hurt-reit-performance

    REIT Correlations

    White Paper Interest Rates & REITs

    REIT-Stocks-An-Underutilized-Portfolio-Diversifier_Fidelity

    rickferri reits-and-your-portfolio

    The Impact Of Interest Rates On Real Estate Investment Trusts
  • beebee
    edited January 2015
    @scott,

    a quick review of PIRMX seems to reveal poor performance verses a blended 50/50 mix of "VGSIX / TIP" and barely out paced "TIP only" over its short existence.
  • PopTartPopTart
    I've been in FRESX since June and will continue to accumulate. VNQ is a REIT etf that I considered before buying FRESX, but ultimately chose FRESX. I like the diversification that REIT's bring to my portfolio. FWIW I don't own TIPs but your logic for doing so seems sound to me.

    Thanks for the many links Bee, they confirm to me why I decided that it's time to devote some savings to REIT's.
  • beebee
    edited January 2015
    PopTart said:

    I've been in FRESX since June and will continue to accumulate. VNQ is a REIT etf that I considered before buying FRESX, but ultimately chose FRESX. I like the diversification that REIT's bring to my portfolio. FWIW I don't own TIPs but your logic for doing so seems sound to me.

    Thanks for the many links Bee, they confirm to me why I decided that it's time to devote some savings to REIT's.

    Wonder if you have considered combining FRESX with FRIFX (much less volatility). I'm thinking that by capturing the upside of FRESX and reallocating periodic gains into FRIFX an investor could offset the occasional REIT down draft as well as maintain a REIT income source?


  • catch22catch22
    Hi @bee,
    One of our larger percentage holdings somewhat related to and for income, is FRIFX.
    But, if we were to mix this with another equity centric real estate fund; we would have to become traders at least to the aspect of technical indications to attempt to avoid a downdraft period for the "other" real estate fund.
    PETDX may be a choide for this. But, while still holding FRIFX; the more likely trading choice would be IYR or a similar etf.
    Regards,
    Catch
  • mrdarceymrdarcey
    Lazard has a real estate income fund, LRIOX, as well. Uses preferreds to mitigate volatility instead, so is a little more volatile than FRIFX, but has a good record nonetheless.

    NRIAX (JRI is the closed end version, I believe) combines global real estate and infrastructure equities with preferreds and fixed income as well. Fund has a short record, but managers have done ok with other Nuveen funds focusing on real assets.
  • PopTartPopTart
    @Bee - No, I haven't thought of moving money amongst different REIT funds. I can stand the downdrafts, and FRESX is a satellite holding as of now. Thanks for the idea though : )
  • Kaspa
    edited January 2015
    FWIW, VNQ is in my rotating momentum leaders system for several months now (current leaders: XLU, VNQ, XLV, TLT)
  • ron
    why not just stay with a winner over many periods? VNQ
  • Kaspa
    If it stays a winner, it will stay near the top.
  • davidrmorandavidrmoran
    I transferred all of my VNQ (significant percentage of my total, for diversity) to FREAX a year or two ago and am glad of it. NTF at Merrill.
  • MikeMMikeM
    Kaspa. Can you elaborate on your momentum leaders system? Do you follow one of the momentum sites or do you have your own system?
  • Kaspa
    My own system. Get the data from the usual sites (Morningstar, Fidelity, etc.) plus
    some newer ones like etfreplay.com. It is not completely mechanical, but ranks ETFs based on returns and volatility. I do take a look at charts and moving averages to adjust my entry points.
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