Morningstar Magazine - April/May 2018 - 52

Strategies

A Better Bogy
This fund is now an even better choice for exposure
to the real estate sector.
BEST IDEAS: PASSIV E

Ben Johnson

Vanguard Real Estate ETF VNQ

This article is adapted from the ETF's Morningstar Global Fund Report dated
Feb. 9, 2018.

Stats 02/28/2018

Vanguard Real Estate ETF VNQ is one of the cheapest real estate funds
available, with an expense ratio of 0.12%. It features experienced management
and an excellent record of tracking its index. It is a fine option in its niche,
earning a Morningstar Analyst Rating of Silver.

Morningstar Analyst Rating
*

Morningstar Category
Real Estate

Expense Ratio
0.12%

Category Average Expense
1.20%

5-Yr Annlzd Return
5.55%

5-Yr % Rank in Cat
48

Morningstar Pillars 02/28/2018
Process
∞ Positive

Until early February, the fund had been tracking the MSCI US REIT Index,
which holds domestic-equity REITs, or firms that manage properties and collect
rent. That index doesn't include mortgage REITs, which invest in mortgages
and mortgage-backed securities rather than actual properties, nor does
it include non-real-estate specialty REITs such as timber or cell-tower REITs.

All in all, there's plenty to like here. K
Ben Johnson is director, passive strategies, global manager research with Morningstar
Research Services.

Morningstar April/May 2018

Price
∞ Positive

Vanguard Real Estate ETF
12

Morningstar US Real Estate

03/2015

03/2016

10.1810
10.03
8

03/2017
Morningstar Ratings 02/28/2018

Morningstar Style Box 01/31/2018

Fund Centroid
Mstar
weighted avg. of Period Return
equity holdings
3-Yr
Average

Mstar
Risk

Zone
75% of fund
equity holdings

Above Avg QQQ

Mstar
Rating

Above Avg QQQ

5-Yr

Average

10-Yr

Above Avg Above Avg QQQ
QQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Top 5 Sectors 01/31/2018

Sectors

■ Fund

❙ Category Average

u Real Estate

3-Yr. High 3-Yr. Low
94.51

98.99

98.99

98.69

p Industrials

0.54 1.13

1.17

1.01

i Comm Svcs

0.12 1.82

0.12

0.00

r Basic Materials

0.06 0.93

0.06

0.00

0.00

0.00

t Consumer Cyclical

0.00 1.81

0%
52

Parent
∞ Positive

$14K

Micro Small Mid Large Giant

Lead skipper Gerard O'Reilly has managed the mutual fund version of this
strategy since its 1996 inception, and he also runs the $700 billion Vanguard
Total Stock Market Index VITSX fund as well as numerous other big index funds.
That experience has helped O'Reilly do an excellent job of tracking the fund's
benchmark and has helped the fund outpace most other real estate ETFs
and mutual funds over time. Its 10-year return is the best of any real estate ETF
and ranks in the top third of real estate mutual funds. The fund's expense ratio
gives it a durable edge.

People
∞ Positive

Growth of 10K 02/28/2018

In February, the fund began to migrate to a new benchmark: the MSCI US
Investable Market Real Estate 25/50 Index. The index change came in response
to recent changes to MSCI and S&P Dow Jones' Global Industry Classification
System, or GICS, which carved out real estate as a stand-alone sector for
the first time.
The fund's new benchmark includes the aforementioned non-real-estate
specialty REITs, which will make up approximately 15% of VNQ's post-transition
portfolio. This change will make the fund's portfolio more representative of the
opportunity set available to its category peers and modestly increase its
capacity as well. These attributes reinforce our positive view of its process.

Performance
∞ Positive

30

60

90

120
Table of Contents for the Digital Edition of Morningstar Magazine - April/May 2018
