# ZRE vs individual REITS



## NorthernRaven (Aug 4, 2010)

I'm looking at filling in the real-estate portion of my portfolio (dull buy-and-hold potato-y variety). Aside from kicking myself for not getting this done earlier this year, I'm debating which way to go. iShares XRE has half its holdings in just three REITS (RioCan REI.U, HR.U and REF.U), so it would probably be better to avoid their fees and just buy one or more of the biggies directly. I'm probably looking at $10-15K, so I could buy reasonable slugs of two or three. Or I could go with BMO's ZRE (which equally weights a big basket of REITS) to increase diversity and convenience at the cost of their MER.

REITS are looking a little pricey compared to the start of the year, but absent a time machine I can't do anything about that. Any useful thoughts out there, favorite representative REITS, etc?


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## MikeT (Feb 16, 2010)

You've pretty much hit all the points there. Zre charges you a small management fee, but in return you get more diversification. Individual reits don't incur that fee but give less diversification. I don't think there's really a bad decision there, just personal preference. (other than picking xre. Buying xre would be an example of a bad decision).

I personally hold just rei. I think that most of these trade together and are lifted and sunk by the same basic things for the most part. So why not just pick the best one and go with that? People can say what they like about the downfalls of picking individual stocks/reits, rio can is my favourite and I don't bother with the others anymore. Zre would be a decent alternative.


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## Dmoney (Apr 28, 2011)

I would go with ZRE or pick out a basket of your favourites. REITs will largely move together, and often in concert with the stock market, but the fundamentals are largely different for different REITs. 

Key points are: type (residential, retail, office, industrial, diversified), region (Atlantic Canada, Western Canada, Central Canada, U.S. exposure), strategy (Core, Core+, Value-Added) as well as due diligence you would do with any stock.

A residential REIT in Atlantic Canada with a Value Added philosophy will be able to pick up properties with Cap rates way higher than an office REIT focused in Toronto with a Core strategy.


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## CanadianCapitalist (Mar 31, 2009)

REITs form 5% of my portfolio and I simply use RioCan as a proxy. I suppose I could add a couple more REITs to be more diversified but I couldn't be bothered for what is really a small allocation. If Vanguard does introduce a low-cost REIT ETF (say 0.25% or so) I will replace RioCan with it. 

10K to 15K is sufficiently large that I'd say direct holdings are fine. If you hold REITs in a RRSP, you can always change your mind in the future


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## NorthernRaven (Aug 4, 2010)

Dmoney said:


> I would go with ZRE or pick out a basket of your favourites.


That's where I'm at, and I'm leaning towards ZRE. I could have bought chunks of REI+UN+REF and replicated the top half of XRE, which would have been good enough for my purposes; the other 50% wasn't likely to do enough good or bad to give me any regrets. Now that ZRE exists, I can get the diversity, and avoid stock picking and multiple costing calculations; I suppose it is a decent tradeoff.

FWIW, I did a quick back of the envelope calculation for this. Buying enough of XRE's top three so that the monthly distributions each DRIPs to a full share would bet around $12K. 60 basis points to BMO for a $12K chunk of ZRE is $70+ a year; not too terrible a price for diversity. 

By the way, for those who have been following Riocan, it seems to be trading at a fairly high premium compared to some of its breathren?


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