The Impact of Vanguard and other Index Funds on REIT Investing

Last update on: Mar 14 2020

Vanguard’s had a large fund invested exclusively in an index of real estate stocks. Recently, real estate stocks were added as a separate sector to the S&P 500, boosting their share of the index. The result is that the various Vanguard funds are now the largest shareholders in most real estate investment trusts in the U.S. While many real estate companies still are privately-owned, among the publicly-traded real estate operators, Vanguard is the dominant owner and has the most influence. This article lays out the details.

Such shareholder concentration has benefited big REIT bosses by insulating them from the threat of activist investors, as Vanguard and BlackRock seldom challenge corporate managers, Stevenson said. The concentration also is “making it much more difficult for smaller REITs to go public,” he said, because they are not large enough to get into the Russell 2000 or the MSCI REIT indexes that guide the big funds.

Meanwhile, said John Guinee, real estate stock analyst at Stifel Nicolaus & Co., specialized real estate investors are pulling back from the sector as commercial property values flatten and interest rates have started to rise.

“Uneducated buyers” of index funds are boosting REIT prices, even as aging properties the REITs own may be losing value, Guinee said.

 

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