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Only REIT is up?
Old 01-25-2007, 10:07 PM   #1
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Only REIT is up?

seems almost all asset classes are down except for REIT (6.68% YTD - wow)
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Re: Only REIT is up?
Old 01-26-2007, 09:18 AM   #2
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Re: Only REIT is up?

give it time.
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Re: Only REIT is up?
Old 01-26-2007, 09:51 AM   #3
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Re: Only REIT is up?

My spouse sold her RFMD yesterday at the day's high price. Up 20% YTD! I'm sure there are plenty of others that have changed since the beginning of the year.

So are you in for the long term? Or do you need to make it all and spend it all this month?
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Re: Only REIT is up?
Old 01-26-2007, 12:10 PM   #4
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Re: Only REIT is up?

My REIT funds are up 6% YTD which is AMAZING considering we haven't even closed out one month of 2007!

After reviewing the tax efficiency of the funds in my portfolio, the REIT funds are the worst by far. They paid out massive cap gains last year. Of course these have been the best performing funds over the past few years, so I guess it stands to reason.

Still, in the interest of tax efficiency (REIT funds are not very efficient), I've decided to trim my allocation a bit in favor of other, more efficient, equity asset classes. Being up 6% YTD has added a sense of urgency to that trimming.

Audrey
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Re: Only REIT is up?
Old 01-26-2007, 07:24 PM   #5
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Re: Only REIT is up?

Quote:
Originally Posted by audreyh1
My REIT funds are up 6% YTD which is AMAZING considering we haven't even closed out one month of 2007!

After reviewing the tax efficiency of the funds in my portfolio, the REIT funds are the worst by far. They paid out massive cap gains last year. Of course these have been the best performing funds over the past few years, so I guess it stands to reason.

Still, in the interest of tax efficiency (REIT funds are not very efficient), I've decided to trim my allocation a bit in favor of other, more efficient, equity asset classes. Being up 6% YTD has added a sense of urgency to that trimming.

Audrey
I agree with you - REIT has had an amazing run for the last few years. It keeps going higher and higher. All my REIT holdings are in a tax-deferred account. I am not concerned about tax efficiency but steep decline. My allocation to REIT is only 2%.

Spanky
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Re: Only REIT is up?
Old 01-26-2007, 07:49 PM   #6
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Re: Only REIT is up?

Well, I'm not worried about a decline in REITs. I mean - it'll happen at some point, and that is the time to load up on more. I remember 98, 99 - some pretty brutal moves in REITs - at least one of those years was down 20% - but that was a great time to invest, and you were rewarded very well in subsequent years.

The reason I am not concerned about a steep decline, is because I plan on holding REIT funds for decades. Over this time frame I figure they'll well recover and then some.

Each asset class has it's season. If you keep a steady allocation - trimming after good years and adding after bad, you get to benefit from the volatility.

Audrey
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Re: Only REIT is up?
Old 01-26-2007, 09:37 PM   #7
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Re: Only REIT is up?

Question about REIT:

It appears that most like REIT and make it part of their portfolio. However, it seems that most recommend not to have too much of it. If I'm reading it right, definitely not more than 10%. Why?
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Re: Only REIT is up?
Old 01-27-2007, 09:45 AM   #8
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Re: Only REIT is up?

Sam, I think it is considered a more esoteric "diversifier" available to help lower the volatility of the core funds in a portfolio. Core funds would be things like large-cap stock funds, small-cap, international, etc.

REITs are kind of mid-cap stocks, but the correlation to equities in general is not that high. Years like 2000-2002 were strong for REITs while most other equity classes suffered terribly. REITs also can be interest rate sensitive, like bonds are, but even that is not always true. While interest rates were rising over the last two years REITs had some of their strongest performances yet!

Yes, it is usually not recommended to hold more that 5 to 10% REITs/REIT funds, just like other esoteric "diversifiers" such as commodities/precious metals, energy, etc. I can't really tell you WHY.

Maybe it's because these more esoteric asset classes tend to be rather volatile. Volatility scares most investors (and causes them to make poor investment decisions like selling at the bottom after getting in at the top).

Audrey
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Re: Only REIT is up?
Old 01-27-2007, 10:13 AM   #9
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Re: Only REIT is up?

Quote:
Originally Posted by Sam
Question about REIT:

It appears that most like REIT and make it part of their portfolio. However, it seems that most recommend not to have too much of it. If I'm reading it right, definitely not more than 10%. Why?
Sam

First of all, you should ask why we would want to have ANY allocation to REITs. The answer is more than just a lower correlation to equities, the asset class has shown very good return potential as compared to the risk involved.

Part of the problem with REIT allocations is that the dataset isn't that old, securitized RE has only been around for 30 or so years. Another problem is that the characteristics of RE change greatly when is goes from direct ownership into a neatly packaged investable equity. This process by itself increases the correlation to equities and is also the reason that I make the vast majority directly into RE and avoid the REIT game.

There is no hard and fast rule about what % is correct. I personally am at about 25% right now, my target is 20%, but it's a little harder to rebalance an actual building. The suggested ranges go from 5% all the way to Swenson suggesting 20% is appropriate for most people. Valuations are a little rich right now, so if you aren't at your target level I would do it slowly.

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Re: Only REIT is up?
Old 01-27-2007, 10:38 AM   #10
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Re: Only REIT is up?

Thanks Audrey and Saluki for the replies.
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Re: Only REIT is up?
Old 01-27-2007, 10:44 AM   #11
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Re: Only REIT is up?

I have about 9% of my retirement funds in REITs. I keep them as part of an allocation strategy, similar to coffeehouse. I am amazed that they have gone up for so long. I keep expecting them to fall in price but they just keep going. I don't know why. I expect when they fall, they will fall hard, but who knows when that will be.
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Re: Only REIT is up?
Old 01-27-2007, 02:03 PM   #12
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Re: Only REIT is up?

Once again...many fortunes have been made by selling too soon.

When I see, as I often do with REITs, "They keep going up. I dont know why", its time to take measure. I dont advocate market timing but I do believe there are times when you look at an asset class and cant fathom the valuation. I dont mean the old ho-cus-pocus 5, 10, 15% too high. I mean 30-50-100% too high. Then maybe a couple of times in your investing career you cut your holdings, all or in part.

With reit dividends hanging around 3% against long time averages of 6-7%...the warning klaxon is sounding. Why? Runups in real estate, the asset class becoming a darling of diversifiers 6-8 years ago, people riding the ascension and jumping into the "hot" class.

We've all seen that happen to other classes and it always ends the same way.

Did own them for some time. Enjoyed their returns in the earlier parts of this decade. Dropped them last year. While its easy to lament continued gains in an already overvalued asset class, I'd rather feel good about owning things that I can rationalize the value on...at least somewhat.

Should the yields begin to approach their historic norms, I might buy them again. I think holding more than 5% in a portfolio right now will turn into a disappointment some time in the near future.
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Re: Only REIT is up?
Old 01-27-2007, 02:45 PM   #13
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Re: Only REIT is up?

I agree with CFB and others here. REITs are a valuable counterbalance against
regular equities, and are sometimes their valuations are way of kilter with each
other. I have no trouble making heavy allocations at those times. I was 100% in
blue chip REITs (primarily GGP, KIM, VNO, WRE, also AVB, BXP, CUZ, DRE, PLD,
defunct CNT, CPG, and a few others) from late 1998 thru 2005. By then (IMO)
valuations were rising above regular blue chips, and I rebalanced, down to
about 10% REITs now.

I watched regular equities continue to rocket upwards for 15 months in 1998-1999
after I went into REITs while they were dropping, and I have watched REITS
continue to climb more quickly than the blue chip large caps I went into. In both
cases I feel very comfortable with the decisions I made, to own the relatively
undervalued (IMO) equities in each case. I do not believe in trying to predict the
future of the market (I stay around 100% in stocks), I just like to own the
cheapest stocks (in terms of expected future dividends).
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Re: Only REIT is up?
Old 01-27-2007, 06:44 PM   #14
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Re: Only REIT is up?

Quote:
Valuations are a little rich right now,
A little overvalued?
Another way to measure REIT is price to funds from operations. The historical means is about 15 and now stands at 24. The yield of 3.05% is pale in comparison to that of Treasury. No one knows when REITs will ever revert to its means. The higher it goes, the harder it will fall. The current valuation resembles the Japanese market that everyone was saying that it would fall soon for a few years, but it continued to rise. When it eventually came, it fell like a rock.
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Re: Only REIT is up?
Old 01-28-2007, 01:28 PM   #15
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Re: Only REIT is up?

Quote:
Originally Posted by audreyh1
After reviewing the tax efficiency of the funds in my portfolio, the REIT funds are the worst by far. They paid out massive cap gains last year. Of course these have been the best performing funds over the past few years, so I guess it stands to reason.
All my REITs are in tax deferred accounts. I bought a variable annuity at Vanguard a couple of years ago just to get REIT exposure because they were not available in the 401k and I wanted the IRAs elsewhere. (The ER is 0.6% so that isn't to bad.) Now that DWs 401k has a REIT fund option I stopped purchasing the VA.
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Re: Only REIT is up?
Old 01-28-2007, 02:39 PM   #16
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Re: Only REIT is up?

Quote:
Originally Posted by Spanky
A little overvalued?
Another way to measure REIT is price to funds from operations. The historical means is about 15 and now stands at 24. The yield of 3.05% is pale in comparison to that of Treasury. No one knows when REITs will ever revert to its means. The higher it goes, the harder it will fall. The current valuation resembles the Japanese market that everyone was saying that it would fall soon for a few years, but it continued to rise. When it eventually came, it fell like a rock.
Another good way to measure the valuations, to be sure. I found that the chief historic appeal and returns from reits came in the form of yields. Lately it seems its all from capital gains. One would think that there'd be a reversion to those historic appeals...orrrr....maybe the "new reit" may not be as useful a diversifier as it used to be...orrrr...maybe it'll be better...but it probably wont be the same critter.
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