Can Vanguard REIT funds boost American Tower and Crown Castle?

Vanguard announced a change to their REIT Index fund’s investment objective. The fund has historically tracked the MSCI US REIT Index. Starting mid 2018 the fund will track the MSCI US IMI Real Estate 25/50 Index. Is it possible these upcoming changes present an opportunity?

REIT stock price chart
What will the price chart of these REITs look like with the heavy buying volume from Vanguard?

 

What are the major differences?

There are some big differences between the two indexes. Lets take a look at the top 10 weighted companies of each index:

US REIT (OLD INDEX)Weight %US IMI REAL ESTATE 25/50 (NEW INDEX)Weight %
SIMON PROPERTY GROUP5.87AMERICAN TOWER CORP5.71
EQUINIX4.20SIMON PROPERTY GROUP4.72
PROLOGIS4.08CROWN CASTLE INTL CORP4.25
PUBLIC STORAGE3.87EQUINIX 3.38
AVALONBAY COMMUNITIES2.90PROLOGIS3.28
WELLTOWER INC2.87PUBLIC STORAGE3.11
EQUITY RESIDENTIAL2.85WEYERHAEUSER CO2.48
DIGITAL REALTY TRUST2.78AVALONBAY COMMUNITIES2.33
VENTAS2.64WELLTOWER INC2.31
BOSTON PROPERTIES2.24EQUITY RESIDENTIAL2.29

Let’s take a look at the big changes in top 10 positions. As a result of these changes Vanguard will be making American Tower ($AMT) and Crown Castle ($CCI)  top 10 positions in their fund. American Tower and Crown Castle are highly correlated.  Combined they will account for 10% of the fund. A typical passive index investor would probably prefer to avoid this level of concentration. For our purposes one thing matters. Vanguard will be buying a bunch of stock in $AMT and $CCI.

Can index changes create a trading opportunity?

Yes they can.  Here are some examples:

Let’s try this again

Back in 2008 I started an investing blog called compoundinglife.com. I knew almost nothing about investing and the financial world was crumbling all around us.

When I started buying stocks in the summer of 2008 I considered it a short term opportunistic trade. There was panic everywhere and it seemed like the perfect time to get in and then get out a few years later. Little did I know at the time that I would fall in love with investing. Learning about markets, businesses, valuation and a pile of other things got me very excited.

10 years later I am still investing, still learning and still loving it. With that I will kick off the new blog and see it where it takes me.