Vanguard REIT (NYSEARCA:VNQ) is an ETF of the Vanguard Fund that trades publicly on NYSE. With more than $30 billion worth of real estate in its portfolio, the fund is one of the biggest public investment vehicles on the market right now.
Its main goal is to correlate with the housing MSCI REIT Index and it has stakes in the next enterprises:
I should also note that most of the companies from the Vanguard REIT ETF had a steady growth since 2009 and this is one of the main reasons why the fund outperformed S&P 500 the majority of the time in 2016:
As for the housing market itself, it showed a phenomenon growth in 2016 and outperformed all other industries. In my opinion, Fed's dovish stance on the market along with the growth of the US economy are the main reasons why real estate showed growth of 18.6% last year and helped Vanguard REIT to show great returns in the last few quarters.
Since the overall growth of the US economy has a direct impact on the housing market and vice versa, I should mention the fact that the yield on the treasuries bonds will also have a direct impact on the real estate and the ability of consumers to borrow more cash to purchase more houses. Since President's Trump victory in November, the yield on the 10-year treasuries note increased to 2.48% (as of the close of Friday's session) in comparison with the 1.86% on the day of the election.
The growth of the yield on the 10-year treasuries note helped Vanguard REIT fund to show better returns and its yield at the moment is around 4.77%:
In addition, the recent Fed decision to continue to raise interest rates this year will translate into the growth of the yield of the 10-year treasuries and the growth of the Vanguard's REIT dividend yield. Unlike in 2007, when before the crisis short and long-term bonds didn't correlated with the Fed's interest rates decision, this time the yield moves in the same direction where the rate goes (in our case higher). It shows us that we are not yet in the bubble and the housing market has more room for growth in 2017.
Also, with the creation of the new real estate sector last year, REITs started to gain tractions amongst investors. It helped a lot of fund managers to directly oversee the correlation between S&P 500 and the housing market with indices like MSCI and made the tracking process of their investments far more easier. This helped Vanguard REIT to attract more than $590 million worth of investments into the fund and to become one of the best ETF funds by the growth of net flows:
From the dividend strategy point of view, Vanguard REIT is not the leader of the dividend yield, but it has a number of competitive advanta ges against others that make it a far better investment than its rivals. It has one of the most balanced portfolios in the industry and its low commissions are the reason why it'll continue to show steady returns without overleveraging itself.
Source: Authors calculation
Based on the facts that I described above, I believe that investing in the housing ETF like Vanguard REIT is a great way to diversify your portfolio and benefit from the growth of the real estate market in the near-term. In addition, Vanguard with its other funds could be described as behemoth of the stock market with decades of experience in investing in all kinds of financial instruments and always maximizing shareholders returns without taking too much risks. This is probably the major reason why people chose Vanguard over others and why I have no doubt in the success of its real estate investment trust ETF.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.