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Why I Won't Buy REIT ETFs Or CEFs


  • We think REITs deserve a place in every investor's portfolio.
  • But how you decide to invest in REITs will have a major impact on your performance.
  • We recommend investing in individual REITs if you have the time, skills, and interest, and favoring ETFs over CEFs if you prefer to follow a passive strategy.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Learn More »

Avoid These Mistakes write on a book isolated on Office Desk. Stock market concept

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Today, 145 million Americans invest in REITs according to NAREIT. In other words, the majority of households hold some exposure to the REIT market and that's very understandable when you consider that:

  • REITs have historically

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This article was written by

Jussi Askola profile picture

Jussi Askola is a former private equity real estate investor with experience working for a +$250 million investment firm in Dallas, Texas; and performing property acquisition in Germany. Today, he is the author of "High Yield Landlord” - the #1 ranked real estate service on Seeking Alpha. Join us for a 2-week free trial and get access to all my highest conviction investment ideas. Click here to learn more! 

Jussi is also the President of Leonberg Capital - a value-oriented investment boutique specializing in mispriced real estate securities often trading at high discounts to NAV and excessive yields. In addition to having passed all CFA exams, Jussi holds a BSc in Real Estate Finance from University Nürtingen-Geislingen (Germany) and a BSc in Property Management from University of South Wales (UK). He has authored award-winning academic papers on REIT investing, been featured on numerous financial media outlets, has over 50,000 followers on SeekingAlpha, and built relationships with many top REIT executives.

DISCLAIMER: Jussi Askola is not a Registered Investment Advisor or Financial Planner. The information in his articles and his comments on SeekingAlpha.com or elsewhere is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions. High Yield Landlord is managed by Leonberg Capital.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SPG either through stock ownership, options, or other derivatives. 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.

Relevant disclosure to presented performance: past performance is no indication of future results. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated, includes international REITs, and may at times invest in companies that are not typically included in REIT indexes. The performance of our portfolio is underrepresented because it is affected by withholding taxes on all dividends. This is not the only account that I own, but it is the first account that I created for the sole purpose of building track record and it is now over 3 years old, which is probably just enough to assess results. The performance is money-weighted.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (49)

theheckwithtech profile picture
I agree 100% with the premise of your article however, there is one fund, managed by Hoya, a well known SA contributor, who has started a new REIT fund that has a unique and interesting approach in its holdings, and also pays monthly. The symbol is RIET and you might want to investigate this one a little further. I am accumulating at $15.50 or less.
@theheckwithtech How are you accumulating at $15.50 or less?
theheckwithtech profile picture
@Miles13 ummmm....when it drops to $15.50 or lower, I buy more.
@theheckwithtech That's my point, the price has not been down that low since it's inception.
bbob68 profile picture
Thanks for sharing your perspective. I guess the exchange of ideas is a good thing and SA is certainly the marketplace for that. One very successful author takes one position and others, equally or more successful take another. There's obviously merit to both but in the end, it's up to the individual investor to suss out what seems to work and take your best shot. In my opinion, Buffet has it right: unless you have the time and talent just go with the S&P because over the long run that's a bet on America.
Jussi Askola profile picture
@bbob68 And to be clear, I agree with Buffett. Investing in the S&P makes a lot of sense to gain exposure to the broader stock market. Note however that we talk about REITs here - which is a different asset class.
bbob68 profile picture
@Jussi Askola Yes,I understand that and believe you are likely a very successful investor/advisor. But the point Buffet made applied to all investments in securities--including REITs.My broader point was that the average investor is trying to deal with a plethora of financial advice, much of which contradictory. That is the issue buffet was addressing.
Personally, I am generally in your camp of having exposure to a number of sectors, including the S&P and REITS. But, what success I have had has come from a slightly different perspective from another author who favors the CEF universe, among which RQI is prominent.
I own all three categories: individual REITs, ETFs and CEFs. My main interest is how each category performs in small and large market crashes, i.e. max drawdowns and total recovery time. Individual REITs for me are all about total return where the lackluster dividend comes along for the ride. Here is where I must rely on expert advice. ETFs and CEFs, not so much.
Jussi Askola profile picture
@labman106 Thank you for sharing your thoughts. In case that could interest you, feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...
craftbrewinfo profile picture
@Jussi Askola What works for you is fine and does not work for everyone.

"Why I Won't Buy REIT ETFs Or CEFs" Simple for me.. I buy REITS AND CEF's..... Individual REITS for capital appreciate and growing dividend, and CEF's for yield and current income. That works for me.
Jussi Askola profile picture
@craftbrewinfo That does not make sense. You could also add margin on your individual REITs and you would get the same amount of income. That's essentially what CEFs are doing. The yield is achieved thanks to leverage.
craftbrewinfo profile picture
@Jussi Askola Yes , but with a small handful of exceptions ( O immediately comes to mind) CEF's pay monthly dividends... kind of hard to live on quarterly payouts,so it makes plenty of sense to me
Dennis O profile picture
@Jussi Askola I agree. That is one benefit of Cef's that I love. THAT is one reason to buy them . When you say an individual can do the same thing by adding margin or options that sir is why I leave that to the professionals who run the Cef's. I personally do not care about adding that to my already stock picking toolbox. The management teams that work with my 40+ Cef's do a much better job then I could. That still gives me plenty of opportunity to manage my 60+ individual stocks. If I was forced to go one direction or another I would side with Cef's. Grant you it would take some of my enjoyment out of the game. -Dennis
bbob68 profile picture
"To give you an example, RQI may have done great in the years leading up to the great financial crisis, but it then lost nearly 90% of its value in 2008."
Were you invested in Reits during this time period and if so how did they do?
Jussi Askola profile picture
@bbob68 It was a real estate crisis. All real estate investments did poorly, including REITs. RQI did a lot worse than average due to the leverage. Individual REITs quickly recovered.
Jussi-I used to own a lot of CEFs and ETFs. Over time (~15 years), I saw I was doing better than all of them on my own, without the high costs. Now I have ETFs only in managed Roth accounts, which at least have the advantage of being low cost. So I agree totally that CEFs for REITs (and generally) are only for those who want exposure but don't want to manage these assets. And my experience bears out the research you reference--CEFs enrich (it appears) only those who runs them.
Jussi Askola profile picture
@Go4Gold26 Thank you for sharing your experience
Dennis O profile picture
I have 20 plus Reits and many have done real well but as long as I keep Reits in my portfolio I will nevery sell RQI/RNP. You could say the same thing about individual utility stocks which I also own several but I would never sell my UTF/UTG. You could say the same thing about drug companies but I will never sell THQ/HQH. My point is owning different sector CEF's is not any different then owning SPY OR QQQ which many own as a good hedge to markets.- Dennis
Jussi Askola profile picture
@Dennis O Yes, it is different. CEFs that are leveraged are different from ETFs and arguably a lot worse due to the high fees, conflicts of interest, and higher risk.
Dennis O profile picture
@Jussi Askola I have 40 plus Cef’s and the difference they make is NAV vs. market price and determining buying at a reasonable price plus it’s easy to see what direction the coverage of dividends are going by just checking the dividend by NAV coverage percentage. Plus the management team is probably most important which is easy enough to determine thru keeping advised by the many great Cef authors on SA. I feel there is room for all these different methods of growing wealth but I put the edge to Cef’s particularly if one is a dividend investor as I am.
Jussi Askola profile picture
@Dennis O I agree that they may make sense as trading vehicles around the Price/NAV. However, I would not consider them as good long term holdings in most cases.
Jussi -- good article and agree with my REIT portfolio mostly individual (WPC, MPW, AMT, ESS, STAG). However, I have 2 exceptions -- in retirement account where I cannot buy individuals (RQI instead) and a small holding of IGR at lower 2020 prices for some of the diversification outside US.
Jussi Askola profile picture
@OutOfOffice I would probably favor VNQ/VNQI instead of those CEFs. Thanks for sharing.
I have no problem owning RQI, despite your valid arguments against it. Do wish I had pounced on STAG, however, when it was meandering in the low 30's.
Jussi Askola profile picture
@jazznut Especially today, I would not want to have leveraged exposure to rather expensive mega-cap REITs. In 2020, it was very different
Going against RQI as the author has is like being against a Sunny Day.
Jussi Askola profile picture
@TheWallStreetKid I am not against it. It may have its place for some high risk tolerant investors. However, I think that ETFs offer better risk to reward in most cases.
albertciampi profile picture
One of your better articles and plainly explained the benefits/drawbacks of each category. Personally I like the fact that CEF’s can use leverage vs ETF’s however in an overvalued market this can work against you. I own both VNQ & RQI and RQI. Has marginally outperformed although VNQ has a much lower management fee. The article on Amarda Hoffler yesterday was excellent and I picked up a few shares this morning.
Thank you.
@albertciampi: I agree: a very sensible article. I got out of the REITs I held and bought RQI because I began to realize I just didn't know enough about the multitude of REITs. I suspect the author is quite correct though that someone more knowledgeable than I could do better.
Jussi Askola profile picture
@albertciampi I appreciate your interest. Feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...

Have a great day!
Jussi Askola profile picture
@Sleepless in Seattle I would have done the exact opposite, especially in today's richly valued market. You don't want leveraged exposure to expensive mega cap REITs.
Income4ever aka Cyclenut profile picture
The new RE ETF from Hoya Capital looks pretty intriguing being its a mix of 100 e and m reits
Ticker = RIET

Long O, WPC, EPR, VICI, ABR, BRMK, EFC and RQI in sector
Contemplating RIET
Jussi Askola profile picture
@Income4ever aka Cyclenut It is heavily invested in mREITs. I prefer to avoid those. Otherwise, there is a lot to like about it.
whatsthis1do profile picture
@Jussi Askola The little spare time I have is spent reading articles from you and Brad... Since I'm not smarter than the market I like and hold $RIET. If you think there is a better ETF that mixes risk, yield and small cap exposure please share.
Sincerely, exhausted ;)
RQI total return is 11.70% since inception
Robbadob profile picture
@Kinney Orwell
It does better still if you can buy it at a significant discount to NAV. One can often get it at a 5% or greater discount, but not now. Its return looks especially good when compared with other reit CEFs, but regardless Jussi has, for as long as I have followed him at least, handily beat it.
Jussi Askola profile picture
@Kinney Orwell The data is directly from the website.
Dennis O profile picture
@Kinney Orwell You are only looking at the market price change only. I assume you plugged RQI into SA. That does not include all the dividends reinvestments. Go to the MOMENTUM column and you will see TOTAL RETURN. RQI in 5 yrs. 109.82% return and in 10 yrs provided 324.31 % return and MAX is 662% return. How crazy is that? I use to do the same thing all the time I did not realize most charts do no include the dividend price added to the market price. Also to my knowledge these prices for CEF's are total return and all fees were included which makes it even better. Life is Good- Dennis
Wayne51 profile picture
There is another reason that I invest in individual REITs rather than someone else's idea of a good REIT investment: I get the dividend when it is paid. I don't have to wait until the end of the quarter for the ETF. If someone is holding something that belongs to me, waiting even one month for the payday is not ideal.
@Wayne51 Understood, though RQI pays its dividend monthly.
Jussi Askola profile picture
@Wayne51 Thank you for sharing.
Jussi Askola profile picture
@Mister Jimmy Which adds additional expenses, which go out of your pocket. There is a reason why most REITs don't pay monthly.
Thoughts on RIET?
Jussi Askola profile picture
@Reit Investor It holds a lot of mREITs so it depends on what you think of those.
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