# which REIT ETF is best XRE, ZRE, or VRE



## dime (Jun 20, 2013)

Of the REIT ETF's what do you think is the better choice? XRE,ZRE, or VRE? Or none of the above since you think its best to avoid the REIT market? Or better to buy individual REITs?
They all hold about the same number of REITs and have a monthly distribution. 


XRE is the largest and most liquid, but highest MER at .6%, weighted by cap size, yield 5%, 418 thousand daily average volume.

ZRE about the same MER at .55% but holdings are equal weight, yield 5%, 29 thousand daily average volume

VRE holdings are cap weighted, .39% MER but yields 2%, 6 thousand daily average volume. 


Note that despite the lower yield, VRE's 1 year annualized return of 14.6% is more than 2% higher than XRE or ZRE. VRE doesn't add the Return of Capital to the distributions. 

Here's more info on that:
http://www.moneysense.ca/invest/etfs/why-vre-outperformed-its-rivals-in-2013

Thanks for your input everyone!


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## scorpion_ca (Nov 3, 2014)

I have ZRE.....prefer equal weight rather than cap weighted.


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## moisimplementmoi (Oct 20, 2014)

dime said:


> XRE is the largest and most liquid, but highest MER at .6%, weighted by cap size, yield 5%, 418 thousand daily average volume.
> 
> ZRE about the same MER at .55% but holdings are equal weight, yield 5%, 29 thousand daily average volume
> 
> ...



they all hold similar securities, so i'm not sure why one would be more liquid than another. .... so choice is more philosophy of Cap vs Equal weight.


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## AltaRed (Jun 8, 2009)

Agree. Liquidity is not the issue. It is whether one wants to be cap weighted or equal weighted. 

Single year, or even 5 year return performance comparisons are not all that meaningful because certain REIT sectors can be in favour when others are not. IOW, a retail REIT may, at any given time, be performing quite differently than an industrial REIT vs a residential apartment REIT vs a retirement residence REIT vs an office REIT. If one does not want to be bothered with watching the REIT sectors (never mind regional biases) like a hawk, then an equal weight REIT may have the more steady eddie performance.


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## larry81 (Nov 22, 2010)

I own ZRE and i like it.

MER could be lower but meh


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## eddyo (Oct 28, 2009)

> I have ZRE.....prefer equal weight rather than cap weighted.


same here


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## Pluto (Sep 12, 2013)

To me, 5% isn't good enough considering the risk. In 2009 they were yielding 10% +. No proof that they will be that good anytime soon, however, 5% isn't good enough for me. ZRE peaked in april 2013, and the more recent peak is lower that that indicating a general down trend. Riets are very sensitive to interest rates, and I think the aforementioned general down trend is anticipating rising rates. I think you can expect more downside as this cycle progresses. I had xre last time, but next time - the next bear market buying opportunity, I think I'll use zre and I think I'll wait until they yield at least in the 7-8% range.


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## moisimplementmoi (Oct 20, 2014)

i thought the main argument for REIT was the correlation to other investments?

i use ZRE, didn't like the weighting in the cap weighted one


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## AltaRed (Jun 8, 2009)

Pluto said:


> I had xre last time, but next time - the next bear market buying opportunity, I think I'll use zre and I think I'll wait until they yield at least in the 7-8% range.


The OP's question was which of the 3 REIT ETFs are best, not whether REITs were a good investment or not. :friendly_wink:


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## dime (Jun 20, 2013)

Pluto said:


> To me, 5% isn't good enough considering the risk. .. No proof that they will be that good anytime soon, however, 5% isn't good enough for me. .... I think I'll use zre and I think I'll wait until they yield at least in the 7-8% range.


Pluto, can you talk more about the risks you're considering that 5% doesn't entice you enough... risk of default? Risk of rising rates? Risk of a drop in market value? 5% is twice that of government bonds and better than most stocks. 

How long do you think you'll need to wait until the REIT index reaches a 7% yield again? And while you're waiting for the ideal buying oportunity in REITS at a 7% yield what are you doing with your cash mean time? The yield sucks even more with no risk income investments. 





moisimplementmoi said:


> they all hold similar securities, so i'm not sure why one would be more liquid than another. ....


What I'm referring to when I say liquid is the average daily volume of XRE shares traded is twenty times that of ZRE and 70 times that of VRE




moisimplementmoi said:


> i thought the main argument for REIT was the correlation to other investments? I use ZRE, didn't like the weighting in the cap weighted one


The correlation to other investments or do you mean the lower or less correlation? The diversification and lower corellation across asset classes and the yield entices me. That being said the REIT's sold of just as bad as everything else in 2008


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## Pluto (Sep 12, 2013)

Hi dime. I'm not talking default risk. Riets tend to go down when rates go up. So in terms of how long, I have to use the Yellen vague term, considerable time. An alternative to 5% on riets is HSE which is also yielding that, and is in a beaten up industry. Another one is CPG. Reits aren't beaten up enough yet, but they will be. 

I understand you concern about the low income on so called no risk investments. But sometimes its the prudent thing to do while waiting for a better opportunity. So I had my cash in short term bonds. Then the oil carnage hit. Then HSE came to my attention: 5% yield with opportunity for some capital gain when oil eventually recovers. CPG is yielding 12%. so even if it has to cut dividend, it may still yield pretty well. 

In contrast, the reits haven't been beaten up yet. When chasing yield I think it is best to look to solid out of favour stocks. 

Look at the chart of xre and how the price went down in a rising rate scenario between feb 2007, and jan 2008. then the carnage that followed. When reits are yielding 5% there is very little upside, and a lot of downside. By waiting one makes so much money on the rebound that it more than makes up for waiting. 

However, I accept the fact that people want yield now, and don't want to wait. Its their money to do with as they please.


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## dime (Jun 20, 2013)

Thanks pluto for the thoughts. Good discussion! Everything you're saying makes sense to me. You seem to have a broader view of market cycles and patience. Both of which are important to successful investing. I do see in the REIT etf charts a little downside for ghe short term technically. The potential impact of rising rates in the next few years is a concern as well. The 2013 taper tantrum was a fine example of that, and when I entered a few ETFs with a good yield near the bottom of that selloff.

But I'm also mulling the idea that if I add another small chunk and sit on it for 5 years at 5% yield what is the probability that I'll have a capital loss by then in 2020? 

I jumped the gun and picked up some energy stocks earlier in the panic...so I'm now facing captial losses with those individual stocks despite the great yield. I pray theres no further dividend cuts! Thats why the diversification of the ETF is appealing as well as the non energy sector.


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## Pluto (Sep 12, 2013)

dime said:


> But I'm also mulling the idea that if I add another small chunk and sit on it for 5 years at 5% yield what is the probability that I'll have a capital loss by then in 2020?


Well you might not have a capital loss by 2020, but if you can wait until there is blood in the streets for reits, then commit to xre or zre, or what ever, by 2020 you will have way more capital and a larger yield. If you buy reits now, for sure you will go through at least a paper loss situation before 2020. Better to wait. 


My goals are preservation of capital right now. To do that I park capital in short term bonds where I only get 2.7%. I want a higher yield, but not at the expense of losing capital. I accept the fact that in general Mr. Market isn't offering higher yields in a way that my capital is safe and can grow. So I accept the 2.7% until better value shows up. If I buy when there is blood in the streets, I'll have a higher yield, more units, and I'll spend less time in the red with my capital. But if I buy xre or zre now, I know for sure I'll be in the red more deeply and for longer when the next bear market arrives. So I ask myself, why would I do that? Also, buying a reit etf provides diversification, but the latter offers no protection in a bear market because they all go down.


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## My Own Advisor (Sep 24, 2012)

I think it's hard to go wrong with either choice, although likely the one with the lowest cost will be the best choice over time.

I've decided to unbundle my REITs and own them directly. The CDN market is not very big whereby you can own the top-5 or so, cap. weighted REITs and they pretty much perform as a proxy to any REIT ETF, with 0 fees as well. I hope to finish the "unbundling" process within the next year.


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## warp (Sep 4, 2010)

Pluto;477985
My goals are preservation of capital right now. To do that I park capital in short term bonds where I only get 2.7%. I want a higher yield said:


> If you are buying bonds, you also have the risk of losing capital, if interest rates rise......even short term bonds.
> 
> What bonds are you buying to get 2.7% where you feel there is no risk of loss of capital?
> 
> Are you buying individual bonds..( where getting 2.7% in investment grade short term bonds is next to impossible these days), or are you buying a bond ETF..( which has the same problems), or are you buying junkier bonds?


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## AltaRed (Jun 8, 2009)

REITs are a good slice/sector/diversification to have in one's portfolio for income stocks, especially in withdrawal mode.... regardless of interest rate cycle timing. These days, REITs provide 5+% in income stream that bonds/GICs don't. When/if interest rates rise, REIT income growth will stagnate/depress but then the GIC/ST Bond portion of one's portfolio will pick up as GICs/Bonds mature and are recycled. It isn't necessary to match each slice exactly, e.g. don't necesssarily need $200k of REITs to balance $200k of GICs/ST Bonds, but that would be a 'perfect' match.


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## Pluto (Sep 12, 2013)

warp said:


> If you are buying bonds, you also have the risk of losing capital, if interest rates rise......even short term bonds.
> 
> What bonds are you buying to get 2.7% where you feel there is no risk of loss of capital?
> 
> Are you buying individual bonds..( where getting 2.7% in investment grade short term bonds is next to impossible these days), or are you buying a bond ETF..( which has the same problems), or are you buying junkier bonds?


Its a short term bond etf. I don't recall saying there is no risk of losing capital. However, fluctuation in short term bonds is very small. I'm talking relative to some stocks and Reits. The reit etf, xre fell over 50% previously, some oil stocks fell 50% recently. But the short term bonds etf fluctuates about maybe 3%. So, relatively speaking the short bond is a good parking spot until better value appears elsewhere. I'm not in a big rush to get rich. After making some bone headed moves, I learned patience pays better dividends.


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## dime (Jun 20, 2013)

Pluto said:


> Its a short term bond etf. I don't recall saying there is no risk of losing capital. However, fluctuation in short term bonds is very small. I'm talking relative to some stocks and Reits. The reit etf, xre fell over 50% previously, some oil stocks fell 50% recently. But the short term bonds etf fluctuates about maybe 3%. So, relatively speaking the short bond is a good parking spot until better value appears elsewhere. I'm not in a big rush to get rich. After making some bone headed moves, I learned patience pays better dividends.


I'm interested to hear more. I'll make a new post for this topic .. so let's talk short term bond funds soon. I've got a bit of CBO, HFR and VSC in my TFSA


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## Koogie (Dec 15, 2014)

AltaRed said:


> REITs are a good slice/sector/diversification to have in one's portfolio for income stocks, especially in withdrawal mode.... regardless of interest rate cycle timing. These days, REITs provide 5+% in income stream that bonds/GICs don't. When/if interest rates rise, REIT income growth will stagnate/depress but then the GIC/ST Bond portion of one's portfolio will pick up as GICs/Bonds mature and are recycled. It isn't necessary to match each slice exactly, e.g. don't necesssarily need $200k of REITs to balance $200k of GICs/ST Bonds, but that would be a 'perfect' match.


This is essentially why I have bought into VRE. I realize that my VCN for instance holds approximately 93% of the same holdings as VRE but allowed myself to slice/dice into VRE a little for the reasons outlined above. I am very GIC heavy and will enter withdrawal phase next year (hopefully !) It was also about psychology, as much as anything, as well.

VRE over ZRE (the other REIT I examined) as I liked the current constituents a little better, it had a lower MER (never hurts) and because I have drunk the Vanguard coolaid.


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## leeder (Jan 28, 2012)

I personally own ZRE right now, but like MOA, I am thinking about unbundling my REIT position to a select few REITs in time. To the debate about cap weight vs equal weight, I wonder if it even makes a significant difference in performance over the long term. I personally bought ZRE because VRE wasn't available at the time. Also, the ignorant me was looking at the yield. If I were a new investor, I would probably go with VRE due to lower MER.


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