Stanford Blyth Fund FICC Winter Quarter 2015 Pitch Vanguard REIT Index Fund (VNQ) 02/26/2015Stanford...
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Transcript of Stanford Blyth Fund FICC Winter Quarter 2015 Pitch Vanguard REIT Index Fund (VNQ) 02/26/2015Stanford...
Stanford Blyth Fund FICCWinter Quarter 2015 Pitch
Vanguard REIT Index Fund (VNQ)
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
FIXED INCOME, CURRENCIES, AND COMMODITES COVERAGE GROUP
Bryant Johnson EJ Bernard Harrison Caruthers Jaewoo Jang John Solitario
Justin Hsuan Kuno Choi Laura Zhang Sen Lin Nick Bien
Pitch Outline
1. VNQ Price History & Metrics Overview
2. ETF Breakdown & Composition3. Macro Catalysts: QE & US Economic
Recovery4. US Real Estate Sector Analysis:
Historical Lows5. Conclusion6. Questions 02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Vanguard REIT Index Fund (VNQ)
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
VNQ was listed October 1st, 2004 at $51.18 per share. It seeks to track the performance of the MSCI US REIT Index, which represents
around 2/3rds of the US real estate market.
REITs?A Real Estate Investment Trust (REITs) is a security that sells like a stock on major exchanges and invests in real estate directly, either through properties or mortgages.To qualify as a REIT, a company must1) invest at least 75 percent of its total assets in real estate assets
and cash,2) derive at least 95 percent of its gross income from such real estate
sources and dividends or interest from any source, and3) distribute at least 90 percent of its taxable income to shareholders
annually in the form of dividends.4) Equity REITs v. Mortgage REITs. VNQ is an equity REIT meaning its
earnings mostly comes from rental income as opposed to gains and losses in MBS for MREITs.
Benefits- REITs receive special tax considerations,- Typically offer investors high yields- Highly liquid method of investing in real estate.
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Stanford Blyth Fund FICC
1. VNQ Overview
10 Year Historical Performance
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Strong performance against S&P 500 over past decade.
Real Estate most profitable asset class past year (52 wk. +26.5%).
60 Day Rolling CorrelationVNQ exhibits moderate-to-high correlation with the S&P 500 based on
the past 10 years.
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Dividend Yield 3.37%
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Given REIT structure VNQ offers high dividend yield.
Offer degree of downside protection in adverse price action.
VNQ vs. Competitors
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Superior performance with less risk.
KBWY
ROOF
IYR
SPT: Volatility Statistics
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
10 Year Alpha: 5.02
10 Year Beta: 1.12
10 Year SR: 0.46
5 Year Alpha: 11.13
5 Year Beta: 0.81 5 Year SR: 1.18
3 Year Alpha 10.36
3 Year Beta: 0.98 3 Year SR: 1.20
Benchmarked to MSCI World Index
Stanford Blyth Fund FICC
2. ETF Composition
ETF Component Weightings
Replicate MSCI REIT Index (2/3rd of US real estate market)
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
ETF Composition
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Top 10 Holdings (37.5%) (01/31/2015)
Simon Property Group (SPG) 8.4%
Public Storage (PSA) 4.1%
Equity Residential (EQR) 3.9%
Health Care REIT Inc (HCN) 3.6%
ProLogis (PLD) 3.2%
AvalonBay Communities Inc (AVB) 3.1%
Ventas Inc (VTR) 3.1%
HighLand Capital Partners (HCP) 3.0%
Vornado Realty Trust (VNO) 2.9%
Boston Properties (BXP) 2.9%
Others 62.5%
Sample ETF Components
VNQ ETF 47.3 4.47% 3.56
Holdings SectorP/E
Ratio Div. Yield (5
Years)P/B
Ratio
Healthcare Property Investors Inc.
Health Care Industry 21.10 4.20% 1.81
Boston Properties, Inc. Apartments 48.66 5.00% 3.85
Vornado Realty TrustD.C. & NYC Offices and
Retail103.40 2.90% 3.98
Ventas Inc.Senior Housing,
Medical46.61 N/A 2.56
Avalonbay Communities Inc.
Apartments 32.24 3.00% 2.47
Prologis Inc. Industrial 34.60 3.60% 1.57
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Dividend growth as revenue generating investment
Stanford Blyth Fund FICC
3. US Macroeconomic Catalysts
Quantitative Easing here and abroad
Strength of $ on USD denominated asset demand
Jobs growth and recovery prospects
Opportunities Frontier• Labor market strengthening. Jobs market has steadily
recovered since the crisis. Analysts predict that although the housing market has not yet responded decisively to the improvement, there will be significant momentum when demand picks up.
• Lack of attractive yield elsewhere = higher demand for US assets.
• Foreign demand for $ denominated investments will rise, particularly in real estate development projects in coastal luxury markets (i.e. SF, NYC).
Hence,
STRONG JOB GROWTH & SECULAR REAL ESTATE DEMAND02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Risk Horizon• Rates increase: FRB Federal Funds rate at 0.12% (12-month
consecutive inflation at -0.1% Jan. 2015). Rates increase (the first in almost a decade) expected around mid-year is expected.
• Regulatory barriers: Difficulty of obtaining mortgage loans due to the fallout of the 2008 Financial Crisis.
• Uncertain Economy: Last year, analysts had expected yields on 2-30 year Treasury notes and bonds to increase given a brighter overall U.S. outlook but instead they have fallen from 3.03% at the end of 2014 to 2.112% currently.
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
“The Goldilocks”
Capital structure of US real estate market with regards to QE increase resilience in real estate
prices.
Moderate rise in rates signal real economic recovery.
Sustained lower rates feed virtuous cycle in asset prices.
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Stanford Blyth Fund FICC
4. US Real Estate Sector Outlook 2015
Demand outstrips supplyCreditworthiness of sellers
improveConstruction spending increase
US Real Estate Sector Summary
Post-2008 Crisis left US in housing glut.By 2011-2012 glut becomes shortage as
vacancy rates fall.
VNQ well poised to take advantage of secular growth trends in US commercial and
residential real estate. 02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Housing: Demand > Supply
US Housing vacancies at 20 year lows (Q4 2015 at 7.0% = Q2 1990 levels)
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Monthly $pending on Construction ↑
Seasonally adjusted construction expenditures at 2004 levels.
In 2014, US Construction Activity +$981 Billion Annual
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Construction Spending Remains ↓ 10-Year Mark
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
US Census BureauSeasonally Non-Adjusted Residential and Nonresidential Construction
(2005 – 2015)
Number of Distressed Sellers ↓
Pre-crisis lows in property foreclosures and short sales.
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
While Mortgage Credit Improves…
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
…Far From Pre-Crisis Highs
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Cause for Optimism
02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch
Housing starts still below long-run average.As an equity ETF VNQ has much to gain still from rising
demand once consumer credit conditions and construction continue recover to normalcy.
VNQ Investment Summary
VNQ is a fairly priced investment that stands to benefit from both loose credit conditions
as well as a moderate raise in interest rates.Fundamentals in US residential and
commercial real estate are strong and growing stronger.
Short term horizons: slightly overbought.Possibility of moderate pullback.
Given an investment timeframe of +1~2 years:
Medium to long term prognosis is excellent02/26/2015Stanford Blyth Fund FICC Coverage Group 2015 Winter Quarter Pitch