# REIT ETFs for TFSA



## mikeyrofl (Jul 12, 2016)

Just wanted to get some expert advice form ya'll. Do you recommending having REITs as a long term holding in a TFSA? If so any recommended funds?

If not, any altenative recommendations?

Currently holding:
XUU
XEC
XEF
VAB
XIC


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## scorpion_ca (Nov 3, 2014)

I have ZRE in TFSA. I really like it as it's a money machine. Plan to hold it for next 25 years.


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## gibor365 (Apr 1, 2011)

scorpion_ca said:


> I have ZRE in TFSA. I really like it as it's a money machine. Plan to hold it for next 25 years.


same here, I hold ZRE + some individual REIT stocks


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## Koogie (Dec 15, 2014)

I hold VRE and am happy with it. Also own two more REITs individually.
If I had to start from scratch, I would probably choose ZRE though.


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## mikeyrofl (Jul 12, 2016)

what do you guys think about buying into ZRE or VRE now vs later or interest rate increase?


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## gibor365 (Apr 1, 2011)

mikeyrofl said:


> what do you guys think about buying into ZRE or VRE now vs later or interest rate increase?


you never know  and imho Canada more likely gonna decrease interes rates than increase them


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## mikeyrofl (Jul 12, 2016)

thanks guys! Why do you prefer ZRE over VRE? 
http://www.morningstar.com/etfs/XTSE/ZRE/quote.html
wow the rating is so low?


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## gibor365 (Apr 1, 2011)

mikeyrofl said:


> thanks guys! Why do you prefer ZRE over VRE?
> http://www.morningstar.com/etfs/XTSE/ZRE/quote.html
> wow the rating is so low?


because VRE or ZRE have weighted allocation and ZRE has equal allocation ... i prefer equal one and have several individual stock I like to increase their allocation...


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## AltaRed (Jun 8, 2009)

Morningstar is not measuring the same thing. VRE and ZRE are a lot newer than XRE. Morningstar doesn't even provide Return vs Category for VRE and ZRE. In any event, I like ZRE a lot better because of its 'equal weight' criteria. If you were to own XRE, 2 holdings alone constitute 1/3rd of total holdings and 5 holdings make up 60%. Better just to hold 4-5 of those holdings and save your self the MER.


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## GreatLaker (Mar 23, 2014)

Going against the grain here, I had ZRE (5% of portfolio) but sold it this year.

Back in 2011, XIC's MER was 0.27, now it is 0.06. In 2011, ZRE's MER was 0.62, now it is 0.61. While many ETFs have become dramatically cheaper, REIT MERs remain about the same, so it is harder to envision them outperforming a TSX Composite fund. Note that total market ETFs like XIC, VCN, ZCN contain a market weighted allocation of REITs, so by adding a REIT ETF or stocks, you are choosing to overweight real estate in your portfolio.

I asked myself 2 questions:
- Is a REIT ETF likely to exceed the performance of the TSX by enough to overcome the difference in MER (.55% in the case of ZRE vs XIC)?
- Are REITs negatively correlated with equities to lower my portfolio volatility a material amount?

In my case I don't believe the difference is enough to be significant, especially if only holding 5% in a REIT ETF. Probably there will be at least one poster that will disagree with me. :smilet-digitalpoint


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## AltaRed (Jun 8, 2009)

Except one does not buy REITs to outperform the TSX. One buys it for the relatively steady income yield of circa 5% plus capital appreciation over time. Same reason to also have fixed income like GICs and bonds in the portfolio.

For an investor nearing retirement, or in retirement, REITS are a reliable source of income generation. IOW, own it for the right reasons.


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## GalacticPineapple (Feb 28, 2013)

The drag of the high MER on REIT ETFs shouldn't be overlooked. You lose almost 40k on a 100k investment over 20 years assuming equal rates of return for the ETF and a small basket of REITs you buy yourself. 

http://saviifinancial.com/seg-funds/m-e-r-fee-calculator


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## AltaRed (Jun 8, 2009)

I agree 61bp is a drag on performance. For those willing to 'roll their own' like me, I don't need that drag and buy my own REITs, but for the average Couch Potato investor, ZRE is about as good as it gets in my opinion and that is what I advise folks to buy.


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## My Own Advisor (Sep 24, 2012)

AltaRed said:


> I agree 61bp is a drag on performance. For those willing to 'roll their own' like me, I don't need that drag and buy my own REITs, but for the average Couch Potato investor, ZRE is about as good as it gets in my opinion and that is what I advise folks to buy.


+1

I've long since unbundled my REITs but for those that do not wish to do that, ZRE or VRE are great choices.


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## doctrine (Sep 30, 2011)

I recommend VRE, the total MER is 40 bps, much lower than ZRE or XRE. Good for smaller accounts and smaller positions.


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## gibor365 (Apr 1, 2011)

doctrine said:


> I recommend VRE, the total MER is 40 bps, much lower than ZRE or XRE. Good for smaller accounts and smaller positions.


Don't like VRE, it's like XRE has weighted approach and 5 top holdings exceed 50% of ETF. Volume is 10 times less than ZRE and just 2.7% yield!


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## larry81 (Nov 22, 2010)

5% of my portfolio is allocated to ZRE. I hold my REIT in registered accounts (TFSA/RRSP) to avoid the tax and accounting mess.

Like many others, i hate the MER but i like the cap-weight approach. BMO recently lowered the MER of a few ETF's, we can only hope they will do the same to ZRE, i would be happy with anything below 0.40%.

There a very good detailed comparison of VRE/ZRE/XRE here:
https://howtoinvestonline.blogspot.ca/2014/10/canadian-real-estate-etfs-which-is-best.html


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## sridharcw (Jun 12, 2016)

Holding REITs in TFSA is recommended because it helps you avoid capital gains and associated calculations. 
My personal picks are XRE and ZRE. Even one of them will be good enough because each ETF has about 15 or 16 REITs giving sufficient diversification by itself. 
For my portfolio I choose both because ZRE is equally weighted while XRE is skewed towards large ones like Riocan, H&R, etc. Since composition differs I hope I can get the best or worst of both worlds. 
You can also consider VRE (from Vanguard). There is not too much of difference across REIT ETFs except for ZRE, which is equally weighted. Ofcourse there is an overlap with broader index ETFs such as XIC which also contain REITs. But I don't see any solution to this overlapping holdings - as long as your portfolio is balanced and you follow long-term holding philosophy its still going to work fine. 




mikeyrofl said:


> Just wanted to get some expert advice form ya'll. Do you recommending having REITs as a long term holding in a TFSA? If so any recommended funds?
> 
> If not, any altenative recommendations?
> 
> ...


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## heartlandca (Jul 18, 2016)

I am new to this forum. Personally i have about 30 to 40 percent of my pro-folio in REIT, including AAR, MRG and MST. MST has given me quite some return. AAR and MRG also performed better than TSX. i only dropped D.UN because it has so much commercial properties in Calgary which was hit terribly by this oil downturn. I only lost money on this dividend REITs.

I will look at those REITs you guys suggested.


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## jargey3000 (Jan 25, 2011)

Good info. here, as always. Question: For retirees (with no pension plans, other than CPP) what % of your (maxed-out) TFSAs would you consider allocating to such a REIT? For that matter, what total % would you allocate to 'fixed income' in your TFSAs?


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## AltaRed (Jun 8, 2009)

Am not the kind of retiree you are asking, BUT why would you separate out the TFSA from the asset allocation process of the entire portfolio? IF your asset allocation calls for 10% in REITs and your TFSA is 8% of your portfolio, then fully 100% of your TFSA could be in REITs. That is what I am doing.


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## doctrine (Sep 30, 2011)

gibor365 said:


> Don't like VRE, it's like XRE has weighted approach and 5 top holdings exceed 50% of ETF. Volume is 10 times less than ZRE and just 2.7% yield!


A) Volume doesn't matter for ETFs, especially when the underlying holdings are very liquid, like for VRE. ETFs 101.
B) VRE's yield is rising as the growth in new units is slowing compared to current assets. YTD yield is closer to 3.2%. Canadian Couch Potato explained it well in 2013 and the trend continued.
C) VRE doesn't pay out an artificial return of capital. It is a much cleaner approach. XRE and ZRE can pay up to 50% of distributions as return of capital, which is the same as selling some of your shares and giving them back. Not doing this lowers yield but will not affect total return.
D) 0.2% a year in lower fees will add up. Also, expect VRE's fees to drop while ZRE/XRE will not. 
E) The equal weight vs market weight approach of ZRE vs XRE sounds better to many people, including myself. In practice, XRE has been slightly outperforming ZRE over many years. Larger REITs do have better access to capital, lower interest rates and better scale.
F) VRE is the absolute clear outperformer in the last 3 years. Do a comparison chart of VRE, XRE and ZRE. Including distributions.


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## gibor365 (Apr 1, 2011)

With VRE I just don't understand why their 2015 Total distribution per unit much less than in 2014: 0.7 vs 1.06
Why one months they pay 0.02 and other month 0.13 :upset: - hence underlying REITs pays same dividends every month ....

I also hold 6 REIT stocks individually accross 6 different accounts and have ZRE in one of the account just to get some equal exposure to other REIT stocks


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## My Own Advisor (Sep 24, 2012)

I suspect it has to do with fund inflows and outflows. A drop in distributions can usually be explained by fund inflows. This is the downside of ETFs in my opinion, whereas, if you hold the assets the fund owns directly, no such issue.


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## james4beach (Nov 15, 2012)

To look at total return performance, make sure you go directly to the fund company web sites. ETFs use the same rules as mutual funds and present their performance is a standardized way: total returns, assuming all distributions are reinvested.


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## mikeyrofl (Jul 12, 2016)

hey all sorry to bring back this old thread but do you all still recommend ZRE?


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## AltaRed (Jun 8, 2009)

Seems to me you from the threads and posts you are making, you are looking for quick gains in a portfolio. Investing is a long term journey. Have patience.

You are aware that REITs can be (and should be to some degree) sensitive to interest rate direction, are you not? If you are a believer that bond yields will continue to increase and/or the BoC is likely to continue to raise short term rates, REITS will face headwinds and continue to stagnate/decline. REITs may be best suited for investors looking for income, nearing, or into retirement. In another thread, you are looking for growth ETFs (just the opposite). What are you really looking for?


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## FI40 (Apr 6, 2015)

GreatLaker said:


> Going against the grain here, I had ZRE (5% of portfolio) but sold it this year.
> 
> Back in 2011, XIC's MER was 0.27, now it is 0.06. In 2011, ZRE's MER was 0.62, now it is 0.61. While many ETFs have become dramatically cheaper, REIT MERs remain about the same, so it is harder to envision them outperforming a TSX Composite fund. Note that total market ETFs like XIC, VCN, ZCN contain a market weighted allocation of REITs, so by adding a REIT ETF or stocks, you are choosing to overweight real estate in your portfolio.
> 
> ...


I made this same argument to myself two years ago and sold off a significant US REIT position. I already own the index, why overweight any particular sector? I feel that if you buy the whole indexing argument, then you are kind of forced to market cap weight all sectors.

I'm not sure about the whole "income" argument... people seem to have a preference for instruments that pay cash every month or quarter. Why? Shouldn't we care about maximizing expected total return at our risk comfort level, period? Income can always be generated by selling off small portions of the position at minimal ($10/trade) cost.


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