Real Estate Investment Trusts (REITs)
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- เผยแพร่เมื่อ 16 ส.ค. 2019
- 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 - www.blackrock.com/ca/individu...
iShares Core S&P Total U.S. Stock Market ETF - www.ishares.com/us/products/2...
iShares Core MSCI EAFE IMI Index ETF - www.blackrock.com/ca/individu...
Real Estate Betas and the Implications for Asset Allocation - joi.pm-research.com/content/2...
Are REITs a Distinct Asset Class? - papers.ssrn.com/sol3/papers.c...
FTSE Canadian Capped REIT Index ETF (VRE) - www.vanguardcanada.ca/individ...
BMO Equal Weight REITs Index (ZRE) - www.bmo.com/assets/pdfs/gam/e...
iShares S&P/TSX Capped REIT Index ETF (XRE) - www.blackrock.com/ca/individu...
iShares S&P Small-Cap 600 Value ETF (IJS) - www.ishares.com/us/products/2...
Vanguard Small-Cap Value ETF (VBR) - investor.vanguard.com/etf/pro...
Vanguard’s Global ex-U.S. Aggregate Bond Index ETF (CAD-hedged) (VBG) - www.vanguardcanada.ca/individ...
S. Aggregate Bond Index ETF (CAD-hedged) (VBU) - www.vanguardcanada.ca/individ...
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You and The Plain Bagel are the best things to ever happen to Canadian finance! So many high quality videos!
Honestly, they are just the best. There is no American equivalent.
Agreed. They even add value for us in the US
Nothing close to it in Australia either. I guess we can piggy back Ben given that both our economies are dominated by banks and energy.
Best thing to happen for US finance as well. That's how bad things are here with retail investing education.
Even here in Brazil this is value.
I am finding your talks fascinating. I love the research base of your talks, and the succinct clarity of your talks. I do find myself looking up the papers you mention and following those to others. I have bascially said this twice, but I find your videos a great service.
"0.513 which is low"
Psychologists cry in the background.
Hey Ben! Could you make a video on the five factor model?
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!
This is a great video. You did a great job here where you started with some very basic concepts (explaining what a REIT even is), got pretty technical, an opportunity to stretch the depth of knowledge of someone who is at a higher level than "what is an REIT" or someone who already has a high depth of knowledge and wants to understand/question your reasoning, then wrapped it up with some relatively plain English simple to understand "here is how you use this information" conclusions. As an extra awesome bonus you cited sources and linked them. I don't know if that pattern was your intention but it is extremely useful, this is a model that would be well used by just about anybody doing a technical presentation on TH-cam and honestly to nearly any audience including customers or management for nearly any technical subject. Well done more please!
Wow, thanks Ben! I was trying for quite a while to understand the effect of adding (more) REITs to a portfolio, and this video was exactly what I needed.
The quality of your content is outstanding Ben. Thanks
Typical Ben. Takes a deep dive into a complicated topic, and then concludes with a simple idea.
Great video with included valuable facts and point of views. Thanks for presenting this concept
Really like your videos. I am overweight REIT's because I like/understand the sector but don't like managing individual properties (used to do it, too much effort for not enough return IMO). I like the idea of "owning" cell towers, data centers, and health care properties, because these will *hopefully* (sigh) not fluxuate wildly during a recession. I am sending your video to my advisor to ask for his opinion on your opinion. Great video, looking forward to the next one.
Very interesting. The most important thing about any investment philosophy is that you have one. If you are comfortable in REITs, I think that there could be worse asset classes to overweight.
COVID and offices :D
This is without a doubt the best investing channel on TH-cam.
Very well explained Ben! And a confirmation for me personally to stick to my super simple global market cap weighted equity portfolio.
Wow some next level information there. I love that you've got perspective on the Canadian market too, very cool
Thanks for the video, this is a great resource for anyone new to REITs. As a US investor, I have the advantage of a Roth IRA, which tips the scale in favor of REITs a little bit more. Personally I'm going pretty heavy into REITs via my Roth IRA. I made a video about why - I actually referred to this video as a source because the info is so helpful. :)
Great information. I must admit I bought a REITs ETF mainly for the purpose of having something different and a bit more fun.
Fun is the enemy of the investment world! Although one thing I would say is that if you enjoy going to a casino (i.e. are willing to get a negative expected return for a risk thrill) then this would be a valid justification for stock picking etc. What you lose in expected return you gain in fun. For that reason I've bought some bitcoin - every day is a slot machine, it's great! :D
I was going to buy some REIT ETF. But now I'll just keep adding to stocks ETF. Thanks for the video Ben
Your channel is brilliant Felix. Thanks for the great education.
Funny, I was ready to argue about the superior historical performance of Equity REITs compared to S&P 500, and the diversification benefit. However, first I opened MorningStar and plotted 5 neutral ETFs: VOO, IJS, IJR, ICF and IYR, in a 20 year span. To my surprise, I saw the Real-Estate ETFs "dancing" with the value smallcap indexes, reaching the end close to each other, while the VOO lagged behind. Very good video.
Hey Ben, great video as always. Would love to see coverage on the great debate residential reits vs. direct ownership of Canadian real estate. Held personally or through a corp? Great stuff.
In Brazil we have something like the "cousins" of the REITs, called "fundo imobiliário". I was thinking add one of these in my portifolio, this video appeared in a such great timing!
@@bettermentboss Fundos Imobiliários (FIIs) cannot get loans to expand. When a FII wants to buy a new asset, it has to issue new shares in the market. The other main diference is that they need to distribute monthly at least 95% of the income generated by renting the properties.
However, we have to remember FIIs income isn't taxable (for now), and our indexes are dumpster fire: We have to pay a 15% tax on capital gains for ETFs, and the SMLL isn't a value small-cap index, is just a neutral small-cap.
The same in Mexico, called Fibras but in Mexico dividends payed are tax reduced instead of common dividends and the capital gain on these is not taxated at all in aim to support development in infrastructure
great videos, thank you. In this case you seem to have skipped over the question of reits as a flow through investment, which I thought would make them a good choice for a Canadian RRSP. An RRSP is a machine that can turn both otherwise tax advantaged capital gains and Canadian dividends into (eventually) taxable income. Dividends in an RRSP are double taxed -- once at the company level, and again in the investors hands. Canadian REITS avoid this first level of taxation, so aren't they a good choice, tax-wise, for an RRSP? would love to hear you address this point.
Thx, very informative video! Learned a lot!
Keep up the good work!
Ben, this is brilliant! Thank you so much!
Thanks for another great video, Ben. Topic for a future episode: new factor-based (so called?) and "smart beta" ETFs from Vanguard and Fidelity, like (US) VFMF, VFVA, FDLO, and FDMO. They sound good on the surface, but I hesitate due to the lack of a track record, they're all very new, and the fact that most of them appear to be actively managed, rather than follow a passive index, though that's sometimes hard to tell. The momentum factor funds in particular seem to require active management.
Someone pointed it out in another video and I can't help but notice now. You never blink!
4:13
Because he is a T-800 and his parents invested heavily in AI etf's.
Maybe you just blink at the same time he does ha
Blew my mind with this one. Great content! Keep up the awesome work :)
Love this channel and podcast. I personally will only keep my total stock market instead of any REITs
I love these videos. Thanks for sharing the analysis in such a simple way
Excellent research and concise summary as usual. Thanks Ben!
Thanks!
Thank you. As always a great educational video!!
Great Video. Thank you for posting. I own REIT index fund (VGSLX) in my Roth IRA account. I own about 15% of REITS in my asset allocation. REITS are good in Roth IRA accounts in US. This is because, the dividends and capital gain are tax free, once money is put to Roth IRA account.
I totally agree! I think stashing some REITs in your Roth IRA is a no-brainer. It lets those dividends earn big time $$$
Thanks for the video Ben!
I had a total different idea on allocations before watching this.
As I'm just starting to construct my all ETF portfolio, I'm wondering if removing REITs and adding IJS would be a good idea moving forward? However when I did some backtesting, IJS seemed to underperform majority of the time and even dragged down the overall returns??!
Plus, with interest rates at all time low now, do you still think overweight on bonds is a good idea? What alternatives do we have Ben?
i was really waiting for this video, thx!!
I hope that it lived up to your expectations!
Wow! Brilliant video!
Thank you for sharing, and keep up the great work!
Thanks!
@@BenFelixCSI Not a problem at all! :D
Great video Ben. Bravo !!!
Just found this channel and it is damned informative. Thank you.
Your Quality content is on another level
Another great video, thanks !
Best Videos on Personal Finance in Canada.... Hopefully you reach 1 million subscriber soon
At this point, I'd argue Ben has the best personal investing videos anywhere on the planet
Probably not just in Canada. :-) I'm from central Europe and I really like to watch Ben's videos.
@@jugzster couldn’t agree more
@@jugzster couldn’t agree more.
Great video and great explanation Ben.
Great video Ben. I own an additional 6% in REITs via ZRE in my Growth Couch Potato portfolio within my TFSA. How would you compare risk and return of investing in something like ZRE compared to purchasing a residential rental property in the GTA?
Great video. I have rental properties, but like you said, the unit values are large, and they are not divisible/have bad liquidity and I have to manage them. I’ve been wondering if I should get into commercial real estate, but that stuff has a high entrance threshold, and has the same problems. Maybe REITs are a good way to diversify in different kinds of real estate without having huge indivisible unit values, but then again, if the same returns can be achieved with a combination of stock and bond ETFs, why would I bother? When you stated those MERs I was instantly turned off by them, as keeping cost down should always be priority #1. Thank you for another great video, keep them coming!
Thanks for watching and for the always thoughtful comments!
Great videos and I always leave the videos run so you can get paid...I just started investing in REITS ever since the recent crash, what do you think of REITS such as EPR with dividend yield of 19.95% and O as well as GEO and RioCan.
Love your channel Ben Felix. Thank-you for the education.
Keep going Ben! Thank you
Very Good information! MY favorite REIT is BTB.UN and NXR.UN. 2 heavy hitters in the yield and compounding world :)
Yahoo Finance doesn't recognize those ticker symbols.
I like NYMT 13.8% dividend.
Oops! A bit more searching reveals BTB.UN trades OTC under ticker symbol BTBIF with a dividend yield of 7.93%
Nexus Real Estate Investment Trust trades under ticker NXR-UN.V and has a 7.17% dividend.
thanks so much for your great video content!!
Awesome content Ben as always. I would love to see a video about what you consider an ideal portfolio. On the topic of the video: I do have REITs in my portfolio, because I prefer to own part of a great REIT (like Realty), rather than some junk bonds.
That makes sense to me. Thanks! A video on the ideal portfolio (in my eyes) could be interesting.
@@BenFelixCSI it would definitely be interesting! Looking forward to it! Keep up the good work :)
Hi Ben, another great video, thanks! However, I am wondering about the idiosyncratic risk part. I thought EXACTLY because of the idiosyncratic risk, adding REIT ETF would add diversification to the portfolio without too much downside. Because this idiosyncratic risk is independent with other asset classes.
This is exactly what i was thinking. Of course since reits have holdings of real estate they have idiosyncratic risk is the real estate market.
Corporate real estate is one of the biggest asset classes today and having the capital as average investors is asking for too much.
I think its worth to explore if this idiosyncratic risk is worth taking and given data behind real estate, albeit since 2008 reits have fixed up the amount of leverage they take, its a pretty good risk to take.
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)?
How would you compensate for the risk of your camera zooming idiosyncratically away from the benchmark?
awesome, very good to know. thank you!
great video dude. where should we put our US growth non dividend stocks? t f s a or rrsp or Non registered account?
A+ video...quality!
thanks for this informative video
Ben, question: is there academic literature that have evaluated LONGER TIME DURATIONS in identifying the factors that explain REIT performance? Namely, when interest rates are rising (e.g., 1950s to 1980). At least one paper cited here considered years since 1980, when interest rates have been falling. Perhaps understanding the data over even longer durations could be particularly useful considering the current low rate environment. I'm a big fan - thank you for all that you do!
@Ben Felix Would VGAB global bond ETF be a good alternative to holding REITs, like VRE? Thanks for your input!
Excellent ,thanks ,bro.
I like listening to ur videos...thank you
Ben. Love your channel... So you think the international ETFs mentioned should be hedged to CAD or is that an inefficient means of exposure to the global markets? Especially given CAD is a commodity currency....
Hi, love your stuff. I’m a fan of Paul Merriman, who bangs his hand on the desk promoting small cap value. I personally believe that small cap value is either out of favor for good, or in the “penalty box” for a few decades due to the popularity of index investing, which favors the S&P 500. Could you consider doing a video and changing my mind? What will cause small cap value to revert to the mean and magically outperform in a world where most people are jamming money into the S&P or similar large funds? Thanks!
Hi Ben,
Love all of your videos that you put out and appreciate all the work that goes into them to educate the viewers. Could you possibly discuss hyperinflation in a future video and how an index portfolio would respond to such an event?
Thank you
I reference hyperinflation in my next video about gold. Maybe I will cover it again in the future.
@@BenFelixCSI look forward to watching it and thank you for the response.
Ok actual qualtion. When you refer to index funds having real estate in their portfolios, are you referring to REITs directly? What about businesses, like McDonalds and WeWork, that use real estate investing to profit? Would there be a better way of quantifying this?
Nice. Thx for this info.!
Hadn't considered this before. Sector investing always carries risk, but why add it if little upside? More validation for low cost index funds/ETF's. Thanks for the insights, Ben.
Yes, what Sam said.
It's called diversification. Don't hold 25% of your portfolio in REITs, but why not 5-10%?
One issue is that finding the funds to replicate the performance of the REIT isn't so easy. Depending on what's available, it may be worth a little more risk to get the performance of the small cap value if that is hard to capture.
Great as allways!
Have you given some thought to the limit of using consumer prices as the reference for inflation when calculating the efficient frontier? Concretely: It seems to make sense to express the portfolio's value in term of expected purchase power for the goods the investor will want. If the investor is expected to later want to buy a house (as consumption, not necessarily because it makes sense as an investment), then what could have been an idiosyncratic risk can on the contrary be viewed as a stabilizing factor. As a caricature, if someone is absolutely sure that the only thing they want to own in the future are REITs, then for them REITs are a risk-free asset. More realistically, if an average investor is expected to use eg 40% of their future purchasing power to buy a house, that should inform the computation of risk adjustment.
Great video!
I like the idea of leveraging for a REIT. Allows for those higher incomes to be re-invested while the tax offset from the interest of the margin debt helps reduce taxable income.
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?
Not a video that made me feel good, my money manager has me in Hines RE investment trusts. None the less love your videos Ben.
Apologies. Sometimes a little discomfort is good.
It is only one research paper. And like most work in scientific research, you look for the evidence and data that fits your research thesis. It should take a bit more than just this one article to make you reconsider your entire investment strategy. Just look at the body of research that is written in favor of REIT's. Does this one paper discredit all of them?
Ben Felix sometimes a little false information is dangerous.
@alter3go and K Z you are both attempting to discredit information that you have clearly not made any attempts to independently review or verify. Go and read these papers and then feel free to provide some literature opposing them. Throwing your uninformed opinions around isn't helping anyone, including yourselves.
Real Estate Betas and the Implications for Asset Allocation joi.pm-research.com/content/27/1/109
Are REITs a Distinct Asset Class? papers.ssrn.com/sol3/papers.cfm?abstract_id=2965146
How Smart Is the Real Estate Smart Beta? Evidence from Optimal Style Factor Strategies for REITs papers.ssrn.com/sol3/papers.cfm?abstract_id=3458308
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?
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?
REITs are now providing 9 to 12 percent dividends (in July 2020). Their percentage rented has dropped about 10 percent. Riocan says their dividend is safe and won't drop. Sounds like a good stock to pick, even if it's not an ETF.
hey Ben can you comment n HR REIT and the Normal Course Issuer bid. Is this usually a negative sign for a REIT?
Great content!
Hi Ben, and thank you for these videos. I find them very interesting and informative. One question: why are you making this TH-cam channel? I would guess you enjoy sharing your knowledge, and you're also looking for some financial profit from the channel. I think that would be perfectly fair; I'm just curious what your response would be.
Hi Ben.... How do you come across all of these academic papers?
One of the few TH-cam channels I upvote before even watching the video
Thanks!
Excellent podcast.
Very interesting analysis. I wonder what Rick Ferri would have said about this if you had asked him why several of his “Core-4” portfolios contain some additional REIT exposure, despite the fact that e.g. his “Total Economy” portfolio already contains 12% US Small Value index and 40% US Bonds. If what you’re saying is right, adding 6% REITs just seems redundant then.
If REITs do not fit into the efficient frontier, then surely eliminating reit or reit like exposure in an index would lower your risk for the same return?
If I understand correctly, it's not that exposure to reits is the problem, it's OVER exposure to reits relative to their cap. So they are a useful diversifier, but not if you treat them as their own asset class and over expose yourself to them.
Thanks for the video! Question, why exactly does the low correlation not add any benefit once we know about the factors driving REIT returns? For example, would adding REITS to a holding of small caps and bonds add a diversification benefit?
No. If you already had exposure to the size, value, term, and credit factors through a portfolio of stocks and bonds there would be no additional expected benefit from adding REITs. Any additional variation in returns between REITs and the factor-matched stock/bond portfolio would be due to the specific risk of the real estate sector which has no expected benefit associated with it. Assets with low correlation are only useful if they also have a positive expected return.
@@BenFelixCSI Makes sense! Thanks!
Ive done well with my REITs and I have recently sold a whole heap to take some profits. Maybe I was a bit lucky. I will be researching this subject a little more before I invest in more.
I have the chance to invest $1000 on REITs. What would you suggest I do and what can I realistically look for refund wise a year after
@@NorCalNiner707 if you just want to invest for one year, just don't do it
Used to have a small amount of REIT but ditched it to simplify. I do have a small cap fund (MAW150) and a ladder of corp bonds which were talked about as an alternative.
Sounds like you have the risk exposure that REITs would offer covered anyway.
Actually the video talks about:
"small cap *value* "
+ " *high yield* bonds"
as an alternative to REIT.
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.
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).
I'm also looking for REITs for protection against inflation.
Thanks Ben!
Is it casual Friday?
Okay, this is epic
Hi Ben, Thanks for this informative video!
You mentioned briefly about IJS and VBR, which track slightly different indices: S&P SmallCap 600 Value and CRSP U.S. Small Cap Value Index.
Your model portfolio includes IJS instead of VBR. Even though IJS has higher MER than VBR, it had better long term returns over a 15 year period. In your view, is the outperformance due to the relatively smaller cap size in IJS compared to VBR?
I would love to hear your thoughts on this.
Thanks again!
The deeper value and smaller size of IJS should put it ahead of VBR after fees over the long-term. I will do a paper on choosing a small cap value ETF eventually.
@@BenFelixCSI I was just going to ask if you could do a regression analysis on VBR like you did with IJS. You read my mind. Many thanks and I look forward to your future TH-cam videos!
Given the difficulty in implementing small cap value stocks at least in the Canadian Market, would you then recommend an investment in REITS for this market for the average DIY investor ( or does the full tax rate too much of a deterrent?)
Very good! Now, can you do one for M.I.C.?
Hey Ben, what about exposure to the private real estate market (eREITS with fundrise for example). They use senior debt and other methods that differ to some degree from publicly traded REITS.
They looked at private real estate in the paper that I mention in the video.
_He shows that the same is true for private real estate, but with the additional contribution to risk from misappraisals._
When you lag private real estate returns to account for misappraisals, the same mix of equity and fixed income returns is able to explain private real estate returns.
Great info!!
Your videos are great Ben.
So, Canadian Dividend and Preferred Shares ETF's would be more tax efficient in a cash/taxable account?
- "They distribute fairly high income yields, most of which is fully taxable as income - even for Canadian REITs if the income is distributed in a taxable account."
I thought I wanted to buy BMO ZRE or Brookfield BPY for diversification but now I think I will buy it in my TFSA or RIF.
Anything paying eligible dividends would be better than a REIT, but even better than that would be something that is less focused on income and more focused on unrealized capital gains.
The research you reference concludes that a portfolio of stocks & bonds can deliver similar factor diversification as RIETs without the idiosyncratic risk of real estate. The historical data in the studies includes periods of both high and low interest rates. How would you test my hypothesis that in a very low interest rate environment (like today), a portfolio of stocks + REITs has a higher expected return than stocks + bonds?
Hey Ben, good video. I’m a reit investor in my tfsa and found this interesting. However, I do have some quick questions. Do the studies you site consider the differences in different types of reits? It seems like they compare the risks and returns of a reit index compared to a very specific subset of stocks and bonds (small cap value and high yield). Why not compare a portfolio of small cap value stocks and high yield bonds to a portfolio (in a tax free setting like tfsa) of small value reits and high dividend yield reits? I ask these questions because I invest in bery specific value reits and my returns are much better than the results you cited from the studies. Maybe the market is inflated at the moment haha but it still begs the question. All the best!
That's interesting, what would those Resits be? How are they doing in the current situation?