Episode summary
Ivo Kolchev On VNQ Vs. VNQI For Dividend Investors
ETF Spotlight
· · Hosts: Jeffrey Sherman, Bill Sokol · Guests: Ivo Kolchev
Summary
Ivo Kolchev argues that VNQ and VNQI are not directly comparable because U.S. and international real estate use different accounting conventions. In the U.S., real estate is carried at book value minus depreciation, while international REITs are marked at fair value by independent appraisers, which makes book value a more useful lens abroad. On that basis, he says international REITs still trade at roughly a 10% discount to book value and offer a slightly higher current dividend yield.
Kolchev also ties the outlook for both funds to easing rates. He expects dividend growth to improve over the next 10 years as refinancing pressure fades, and he thinks lower money-market yields could make REIT yields more attractive to income investors. For U.S. investors in VNQI, he sees currency risk as real but limited relative to the dividend stream, and he expects only a small dollar tailwind going forward.
On portfolio composition, he says both ETFs are passive and market-cap weighted, so any sector rotation will likely be slow. He notes that VNQI carries about 20% emerging-markets exposure, which adds volatility but also potential upside from faster GDP growth. Asked to choose one fund, he picks VNQI because of its higher yield, international REIT discount, and a possible further weakening of the dollar.
Key takeaways
- Ivo Kolchev says international REITs still trade at roughly a 10% discount to book value, supporting VNQI over VNQ on valuation.
- He expects dividend growth to pick up over the next 10 years as higher-rate refinancing pressure fades for both funds.
- Kolchev thinks lower money-market yields could make a roughly 4% REIT yield more attractive to income investors.
- He sees currency risk in VNQI as uncertain, but he still expects a modest dollar tailwind for U.S. investors.
- VNQI’s about 20% emerging-markets exposure is a risk, but Kolchev says it also offers higher long-term growth potential.
Notable quotes
“the first thing I want to highlight is that, we basically have, really different accounting approaches”
“international REITs, they're still trading at roughly a 10% discount to book value”
“over the next 10 years I expect dividend growth to pick up at both ETFs”
“I do expect some further dollar weakness, partly driven by interest rate cuts, partly driven by geopolitical risks”
“my pick right now, it would be VNQI because as I said, it does offer a slightly higher current yield”
How the episode opens
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Seeking Alpha is not a licensed securities dealer, broker, US investment adviser, or investment bank. Hey, everyone. Daniel Snyder from Seeking Alpha.
Welcome back to another episode of ETF Spotlight. Today, we are joined by Ivo Kolchev. He is a Seeking Alpha Analyst who has been writing on the site here since about 2021, if I remember correctly.
Ivo, I'm excited to dive in today, the world of real estate, but a lot of times here on Seeking Alpha, we talk about the American U.S. real estate market, we focus on the REITs, and how the real estate market in America is doing. But today, we get to dive into conversation with you about not only U.S., but the ex-U.S., because you recently wrote an article here on Seeking Alpha comparing VNQ, which is the Vanguard Real Estate Index Fund ETF Shares, compared to the VNQI, which is the Vanguard Global ex-US Real Estate Index Shares.
So, wanted to first, like, get your high level approach. How is it that you're viewing the U.S. real estate market versus the international real estate market?
And we can go into all the risk and the upside and downside and dividend yields. But first, I wanted to see, what's the high level approach here?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- vnq vs vnqi
- dividend yields
- fed rate cuts
- currency risk
- long-term growth
Companies and tickers mentioned
- VNQ
- VNQI
- VNQ
- VNQI
Watch the episode
Watch “Ivo Kolchev On VNQ Vs. VNQI For Dividend Investors” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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