We continue to look for stock ideas that provide stability and income to help offset the pressure of low interest rates. Recently, Dan Caplinger of the Motley Fool noted that real estate investment trusts have become a popular income-oriented investment. As there is increasing focus on dividends, it is likely that a number of companies are looking at the hoops through which they would have to jump to qualify to be a REIT.
Dan then looks a three companies that have completed this step.
Looking back at REIT conversions
- Forest-products supplier Weyerhaeuser (WY)
- Plum Creek Timber (PCL)
- Sabra Health Care (SBRA)
- American Tower (AMT) -- mobile-transmission tower company
I thought that I would put these together and see whether the combination of different market segments would provide both income and diversification. Note that I will combine WY and PCL as they are in the same space -- i.e. they will have 1/6 of the investment each.
I hope this will be an interesting selection and worthy of comparison with our broadly diversified dividend bearing ETF portfolio. It will be interesting to see how they compare with our reference dividend bearing ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- REIT Stocks Could Deliver Strong Dividends -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||2%||6%||66%||12%||110%||7%||57%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||2%||-1%||-3%||10%||95%||1%||4%|
|REIT Stocks Could Deliver Strong Dividends||8%||5%||21%||11%||52%||-1%||-6%|
I think it is worth having access to real estate trusts -- I have Vanguard REIT Index ETF (VNQ) and SPDR Dow Jones REIT (RWR) which I use as a comparison. In my view, the ETFs win out in terms of returns and volatility. It's hard for me to see a reason to go with this selection over having an ETF unless you have some detailed knowledge which I don't.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
The charts tell me the same thing. I am happy with my ETF selection and so this is of no further interest.
Additional disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.