Income · Stocks to Consider and Updates

Vanguard REIT Update

VanguardOver the past 52 weeks, the Vanguard REIT Index Fund (NYSE: VNQ – $76.40) had a rough time of it following a robust performance in 2014. The market for the securities VNQ tracks in the ETF cooled considerably due to concerns about the potential for rising interest rates causing negative price appeciation for the year ended December 31, 2015. The value of the shares fell from $89.27 in January to close out the year 12% below where it started, but it did manage to return investors 2.37%, thanks to the generous dividend. The holding still provides investors a distribution yield of 3.92% at current levels and I believe the real estate sector should stabilize over time. REITs are cyclical businesses and interest rates frequently increase when the economy is strong. What investors should fear most is the prospect of REITs getting hurt by rising rates but then not being helped by a corresponding lift in the economy driving occupancy and rate increases on tenants.

 As of December 31, 2015 VNQ’s top ten holdings of a total of about 152 positions were as follows:

 Top 10

The sector exposure of the fund, which tracks the performance of the MSCI U.S. REIT Index, was weighted heavily in retail and residential companies. The subsector allocation at year-end was as follows.

 Sub Sectors

The shares are off its lows of $71.67 set back in September and the outlook for the fund is mixed. However I am going to maintain my 7% allocation for now.


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