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A Big REIT ETF Is Changing Indexes

November 17, 2017 1:18 pm
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A Big REIT ETF Is Changing Indexes

Earlier this year, Vanguard proposed to investors an index change for the popular Vanguard REIT ETF (NYSE:VNQ) and related index funds. VNQ is the largest exchange traded fund providing exposure to real estate investment trusts.

Pennsylvania-based Vanguard, the second-largest U.S. ETF issuer, said shareholders have approved the index swap. VNQ, the Vanguard REIT Index Fund and Vanguard Variable Insurance Fund-REIT Index Portfolio will switch to the MSCI US Investable Market Real Estate 25/50 Index.

That index “includes real estate management and development companies in addition to real estate investment trusts (REITs), offering broader exposure to the real estate market. Shareholders also approved a proposal to reclassify the Vanguard REIT Index Fund from 'diversified' to 'nondiversified' as defined by securities laws,” according to a statement from Vanguard.


Not only is VNQ the largest REIT ETF, it's the largest sector ETF of any variety. The ETF has $35.3 billion in assets under management, a sum surpassed by just 18 other ETFs. VNQ currently tracks the MSCI US REIT Index.

“Starting with Vanguard’s REIT index change, the new benchmark will include many specialty REIT companies that are now in several other REIT index and active funds,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Thursday.

VNQ is up 3 percent a year-to-date, a performance that has been hindered by the ETF not holding some of the better-performing REITs, such as American Tower Corp. (NYSE:AMT), Crown Castle International Corp. (NYSE:CCI), SBA Communications Corp. (NASDAQ:SBAC) and Weyerhaeuser Co. (NYSE:WY), according to Rosenbluth.

Current Look

In its current form, VNQ holds 154 stocks, 18.3 percent of which are classified as specialized REITs. The ETF allocates just over 18 percent to retail REITs and 16.5 percent to residential REITs. VNQ has a dividend yield of 4.8 percent.

VNQ's annual fee is 0.12 percent, or $12 on a $10,000 investment, making it cheaper than 90 percent of rival funds.

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Disclosure: The author owns shares of VNQ.

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