# Vanguard FTSE Cdn Capped REIT ETF (VRE) - Why is the yield so low?



## Killer Z (Oct 25, 2013)

Hi all -

I purchased this ETF some time ago to provide my overall portfolio with some REIT exposure. I went with the ETF over individual stocks to keep things simple. My question is why is the yield so low in this ETF (2.12%) when the top 5 holdings have an average yield of 5-6%?

Thanks in advance.


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## GoldStone (Mar 6, 2011)

VRE launched at the end of 2012. It gathered assets rapidly throughout 2013. Rapid asset growth has a dilutive effect on distributions. This dilutive effect should disappear eventually, when ETF asset base is large enough compared to the new asset inflows.

For more details, see Vanguard explanation posted on FWF. It talks about VCE, but the same idea applies to VRE.

http://www.financialwisdomforum.org/forum/viewtopic.php?f=33&t=115996&start=25#p497035


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## andrewf (Mar 1, 2010)

http://canadiancouchpotato.com/2013/12/19/why-has-vre-outperformed-its-rivals-in-2013/



> The other reason for VRE’s relatively low yield is probably temporary. When a fund sees large inflows shortly before a distribution date, the amount paid out to unitholders can be diluted. This can affect any investment fund, but the impact is likely to be highest when a new fund is small but growing rapidly. And as Hoffman says, “VRE has grown 470% in the 12 months ending November 2013, most of which is due to cash flow.”
> 
> To understand this idea, imagine an ETF has $10 million in assets, consisting of 500,000 units with a net asset value of $20 each. Now assume in a given month the fund receives $20,000 in dividends, which increases the NAV to $20.04. On the next distribution date, investors in the fund would expect a distribution of $0.04 per unit, after which the unit price should fall back to $20.
> 
> ...


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## doctrine (Sep 30, 2011)

Looks like the yield based on the last month is closer to 4.1%. I'm guessing it should rise above 5%, especially with the lower MER (0.40%).


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## Killer Z (Oct 25, 2013)

The yield has hardly moved since I purchased this ETF (currently at 2.12%). With the 0.40% MER. I have decided to sell rather than continue to wait. 

I recently rolled my position from VRE, into REI.UN, HR.UN and REF.UN. My average yield is more than twice as high now, and I no longer have a MER. The downside is that I am not as diversified, however REI and HR were big positions in VRE, thus not too much of a diversification downgrade.


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## banjopete (Feb 4, 2014)

As noted above canadiancouchpotato had a pretty complete explanation to your question that I read with interest as I recently bought some of the vanguard offering. I know you still remained in RE but there are still many other ETF RE options, no need to bail completely on your initial intention if you didn't want to.


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## leeder (Jan 28, 2012)

@ Killer Z: Are you buying for the yield or total return? VRE has outperformed ZRE/XRE (i.e., the higher yield alternatives). It's also cheaper than ZRE/XRE. In any case, I think it's a good call to just buy couple individual REIT holdings. Buying just for the yield is a slippery slope, though.


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## Killer Z (Oct 25, 2013)

leeder said:


> @ Killer Z: Are you buying for the yield or total return? VRE has outperformed ZRE/XRE (i.e., the higher yield alternatives). It's also cheaper than ZRE/XRE. In any case, I think it's a good call to just buy couple individual REIT holdings. Buying just for the yield is a slippery slope, though.


I was more so simply looking to establish a REIT position in my portfolio (approx 5%). Initially I thought buying an ETF would be a good method of doing so, and VRE appealed to me as it had the lowest fees. I try to avoid the temptation to chase yield, however it just did not make much sense for me to hold VRE, when REI/HR/REF provide me with a good portion of the exposure (these three positions make up almost 33% of VRE), and over twice the yield when factoring in the MER that comes with VRE.

It will be interesting to see the difference in total return after 12 months. Truthfully, I cannot see how VRE will top REI/HR/REF unless one of the other larger positions (i.e. Brookfield or Dundee) take off.


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## GoldStone (Mar 6, 2011)

The supposedly lower yield of VRE is a mirage. Post #3 explains it well. I know you switched already but, still, it might be a good educational exercise to understand how the ETF works.

That said, there is nothing wrong with unbundling the ETF to save on MER.


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## leeder (Jan 28, 2012)

I suppose that's the beauty of a product like ZRE, where the equal weight places more weighting on the smaller names. This is to bank on the fact that the smaller REITs will have more potential than the big names. That said, we'll see how things turn out as the year goes. It wouldn't surprise me if the treasury yields go back up to the 3% range later in the year.


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## My Own Advisor (Sep 24, 2012)

I feel the same as GoldStone, unbundling the ETF to save on MER. I've done the same over the years and now own REI.UN, HR.UN, CWT.UN and D.UN as my main holdings from a REIT ETF. These are DRIPping every month in various registered accounts. Hoping I'm in good shape for the next real estate cycle by picking up shares in this range.


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## arc (May 19, 2012)

Do you guys feel that now is a good time to buy into VRE? Considering the rate cuts?


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## pearl (Mar 5, 2015)

Any update please?


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## HaroldCrump (Jun 10, 2009)

arc said:


> Do you guys feel that now is a good time to buy into VRE? Considering the rate cuts?





pearl said:


> Any update please?


Don't look at the Canadian rate cuts alone - that's not what's driving the REIT sector lower.
You have to look at the US rate prospects, too.
Increase in US Fed rates drives capital out of Canadian REITs, leading to capital losses.

At this point, buying VRE or any other Canadian REIT index is a bet on US Fed not raising rates in Sep, _and _lowering prospects of Dec hike.


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## godblsmnymkr (Jul 15, 2015)

good post


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