Ed Mamula.com

Automatic 7 :

• 50% DBC
• 50% VNQ

A7 Mom & Pop :

• 23.5% DBC
• 23.5% VNQ
• 26.5% BND
• 26.5% STPZ

Details to follow…

Well, VNQ just barely missed the cut at the end of March, and although it started out weaker in April than VTI, it has now turned around and has powered higher over the last couple of days.  My relative discomfort with the volatility of VNQ and it’s ability to jump up and down my rankings so quickly have caused me to ask a few questions:

1) Is VNQ the best vehicle for passive REIT investing?

2) Does the diversification benefit of a REIT stem primarily from the fact that it is an investment in real estate, or the fact that REITs are income investments?

3) Is semi-monthly a better update frequency for the Automatic 7 strategy?

I don’t know the answer to question #1, but for now I will give VNQ the benefit of the doubt because of its low expense ratio and high liquidity.  I REALLY don’t know the answer to question #2.  I looked at including CVY in the mix, because I am intrigued by the asset allocation of that ETF.  It is a mix of income investments spanning “U.S.-listed common stocks, American depositary receipts (“ADRs”) paying dividends, real estate investment trusts (“REITs”), master limited partnerships (“MLPs”), closed-end funds, Canadian royalty trusts and traditional preferred stocks.”  The trouble with CVY is in it’s relatively low liquidity.  I’d like to enter Market on Close orders for all Automatic 7 trades, and I’m afraid that CVY might be a poor candidate for that, particularly as my own assets under management rise.

As for question #3, I think I’m really just looking for an excuse to rotate into VNQ now, and semi-monthly rotation would provide that excuse.  However, once I factor in reasonable slippage costs, it isn’t at all clear that semi-monthly rotation is superior, and when I am in doubt, my bias is to do nothing.