A reader asked if I had read The Only Guide to Alternative Investments You'll Ever Need by Larry Swedroe and Jared Kizer and then proceeded to leave the entire book (slight hyperbole) in the comments which you can read here. The reader wanted to know if I had an opinion on the conclusions drawn in the book. I have not read the book so going by what the reader left....
The first part of the question focused on the long term diversification benefits of REITs. First let me say that I am quite certain REITs refers to REITs listed and traded on the public exchanges. I wrote pretty extensively about REITs last February and I've been out of the segment since December 2007.
I can't refute any of the arguments in any of the studies about REITs' impact on portfolios but I am not convinced they offer a whole lot of diversification benefit. They certainly did not on this go around which prompted my exploration of farmland stocks. I've not really done anything meaningful with farmland stocks and I am not saying I won't go back into REITs but in terms of being great diverisifiers, I'm not sold. The post above from February that I linked to focuses on why David Swenen's notion of 20% in REITs (does he still think this?) is not right for me.
Apparently Swedroe and Kizer think highly of TIPS. Most clients own TIP and WIP and I disclosed buying the PowerShares Agriculture ETF (DBA) because I expect inflation to pick up in the next couple of years. I would say I'm on board with that one.
There is also a focus in the book about expensive, complicated investment products being bad for several reasons. I agree. The way I view the world if I can buy it online in my brokerage account it is not a complex product--the strategy (underlying a fund) might be but the product is not. A few months ago I remarked about a particular mutual fund being complicated because there are a lot of trades within the fund and the manager appeared to not know the sector positioning when he was on CNBC; complex strategy simple wrapper.
Where possible I prefer simple (I realize this can be a relative term) both in portfolio construction and in life.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
11 comments:
Roger, I own WIP too and I've been very disappointed in it. It swooned badly along with equities this fall and is yielding less than I expected given its high-inflation focus. ETFConnect shows total return ytd of -26%.
Any thoughts on what's up?
Thanks very much.
the US dollar is what is up.
Hi Roger, I have a question. I am wondering if you are still long RYMFX. If so, and you recently bought DBA, isn't RYMFX short agriculture (as the commodity is almost certainly below its 200 day MA), while you are long agriculture with DBA, essentially neutralizing the position? If this is correct, why not just sell RYMFX? I am just trying to figure out your thinking here....many thanks
RYMFX goes long and short different things based on technical analysis. The way I view the fund I am buying the successful exectution of a long short strategy not a proxy for the things it longs or shorts. the strategy will deliver a result not a proxy for what it is long or short.
I bought DBA because I expect the TARP et al to be inflationary at some point and DBA is down a lot from its peak.
If inflation skyrockets I expect DBA to go up a lot and I expect RYMFX to go up a little as it seems to always do.
When commodities went up a lot in the first half of 2008 RYMFX did not go up a lot. They simply are different things and capture different effects.
thanks
Merry Christmas Roger!
I think an important distinction to make when talking diversification is to specify if you are adding to or dividing up your exposure to the various market types.
For example if you hold 60% stocks and 40% bonds and you add a 20% REIT position taken from the bonds or 10% from each of stocks and bonds then your portfolio is going to correlate more with equity markets not less. On the other hand if you put 20% of your stock exposure into REITs then your portfolio's correlation with SPX will go down.
I have owned WIP and TIP in the past, but I don't own them now... I think that either commodities or gold will be much more potent performers during inflation. TIPs on the other hand will lag during deflation, prosperity, recession, and will basically break even during inflation iff the issuing government decides to publicly recognize the full amount of the inflation it has engaged in.
I am not interested in betting that the government will be unable to find a way to depreciate the value of my cash while not paying for the full amount on my protected bonds ;)
Anon 7:50 one of the advantages of something like endowment fund is that they can afford the time and transaction costs needed to optimize all of their positions so that their exposure doesn't cancel out now and then. It seems like small investors and mid-sized managed accounts usually have to leave this value on the table.
Roger,
I just wanted to say thanks for your website.
I have been a visitor for about a year now, and have valued the advice you and your contributors provide. Personally, I have been investing now for 10+ years and feel I still have a long way to go in my education.
My most recent adventure has been in buying corporate bonds in my Fidelity account. I hope the timing will provide some decent returns.
I wish you a Happy New Year, and please keep the site going!
A Cardinal Fan
I think with REITs you have to answer a couple of questions...
1. Did all the experts add REITs to their portfolios simply because REITs were hot the last decade?
2. Do REITS suck this year simply because EVERYTHING sucks this year, or because they will generally suck now that the housing boom is over?
Depends why type of REIT you are talking about.
Given your knowledge of REITs, you should be investing in balanced index funds only.
"Given your knowledge of REITs, you should be investing in balanced index funds only."
Ouch. So much for holiday cheer.
so 3:29, lets see if we have this right, i got clients out of REITs in Dec of 2007 and you're gonna heckle me for not understanding the space. really?
Post a Comment