Thursday, March 20, 2014

REIT and Regional Bank Baskets

Today illustrates a point previously made about how my regional bank basket and my equity REIT basket interact with one another. 

Earlier this month, I published a post containing the then current equity REIT common and preferred stocks.  Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14 I mentioned in that post that it remains to be seen whether or not that sector shift will actually work. 

A reader inquired how I would measure whether this particular sector performed to my expectations. He noted that this portfolio would throw off more income than cash earning nothing in a MM fund which is of course true. 

In the comment section to that post, I referenced a number of metrics that I would use to reach a conclusion on performance. 

My most important guideline is to beat the S & P 500 performance with far less risk/volatility and considerably more income. That is one bogey. 

Another measure is how the performance of that basket compares to VNQ, a low cost index fund offered by Vanguard that owns equity REITs and no equity preferred stocks. I would not draw any conclusions making that comparison on a daily or monthly basis, though I would look most days to see how I am doing compared to VNQ. 

VNQ was down .66% and my basket was down .33% a few minutes prior to publication of this post. For the most part, I am outperforming today due to my coupling of some preferred stocks with the common shares. The preferred shares are just holding up better, with several of them slightly in the green. An example would be DLRPRE up .21% while DLR is down again today by over 2% so far in the trading day.

The equity REIT common shares are reacting negatively, at least for the moment, to concerns about rising interest rates. 

I mentioned another performance metric. My portfolio has a lot of moving parts, checks and balances, and designed to cater to multiple possible future scenarios. 

Put my REIT basket together with my Regional Bank basket, the split would be roughly 60%REIT/40% Regional Bank. Rightly or wrongly, the market will take regional banks up in price when factoring an increase in interest rates. Today, that basket is up 1.04%. When I net the smaller regional bank basket against the REIT basket, I am up over $200 so far today on a net basis. The regional bank basket is up over $450.

Added Later in the Day Thursday 3/20

I checked the relationship between the two baskets again at 12:55 today C.S.T.

Regional Bank Basket +$630 up 1.45%
Equity REIT Basket -184 down -.29%

VNQ -.69%

My regional bank basket, which focuses more on micro cap and small caps, is not doing as well as KRE that has a much larger market capitalization than my basket:

KRE: 42.39 +0.77 (+1.85%) : SPDR S&P Regional Banking ETF

I do not own any of the top ten holdings:  KRE - SPDR S&P Regional Banking ETF

Last Update Showing This Relationship
As of 11:3 C.S.T on Friday 3/21

Regional Bank Basket: +$170.
REIT Basket: +$408

Today, the REIT basket is slightly underperforming VNQ. Several of the equity preferred stocks that helped the portfolio yesterday are the source of that underperformance.

KRE: KRE: 42.44 +0.09 (+0.21%) : SPDR S&P Regional Banking ETF
TLT: TLT: 107.95 +0.88 (+0.82%) : iShares 20 Year Treasury Bond ETF
VNQ: VNQ: 70.32 +0.72 (+1.03%) : Vanguard REIT ETF

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