Portfolio Update - April: Bring On The Alpha

• March performance improved our alpha vs. sector ETFs, increasing from 1.1% to 2.6% YTD, despite absolute returns declining by 2.4%.
• We outperformed by playing defense. Performance on the year is looking good.
• Portfolio updates include detailed sector allocation, cash management, and recent trades, emphasizing transparency and strategic adjustments.
• Potential trades (exclusive for paid members) focus on preferred shares, baby bonds, and select common shares, with detailed analysis on yield-to-call and valuation metrics.
• Potential trades also includes an example of how to trade a callable floating-rate share.

March was a great month for our performance. Our alpha vs. the ETFs for our sector increased from 1.1% year-to-date to 2.6% year-to-date. That’s great. In absolute terms, our returns still went down. But the decline was much smaller for us than for the sector as a whole. I think one of the most important lessons for investors is to think defensively. It’s not all about winning more in the months when the market goes up. It’s also about having a smaller dip when the market goes down.

Our returns for the month were about negative 2.4%. The sector (average of the ETFs for our sector) was about negative 3.8%. I’m happy with that. It leaves our year-to-date returns at 3.1%, which is much better than the 0.5% average for the ETFs. 

Are there scary things in the market today? Absolutely. Is our strategy changing drastically? No. We have more cash than usual. Our preferred share allocation is lower, after taking some huge gains. But we’re still following the same general strategy. 

Portfolio Updates

You can find prior installments of the Portfolio Updates on the Portfolio tab of our website.

Older editions of the Portfolio Update are unlocked for everyone. The newest release reserves the foreshadowing section for paid members (for a couple of weeks).

Trade Alerts

We have a page on our REIT Forum website to link all trade alert articles.

Here are The REIT Forum’s trade alerts.

Layout - Modified Order

To keep things simple for our investors, the rest of the portfolio update is divided into several segments. We run the same segments (with new content) each week. 

1. Returns on Total Portfolio
2. Sector Allocation
3. Reminder About Cash
4. Housekeeping
5. Recently Closed Positions with Returns
6. Recently Opened Positions with Returns
7. All Open Positions by Sector with Returns
8. Outlook (skipped)
9. Foreshadowing Potential Trades (paid section)

This layout maximizes transparency while keeping the foreshadowing of our potential trades within the paid section. It also loads the images together at the front, while putting the text-heavy sections together at the end.

Returns on Total Portfolio

The chart below shows our performance since we began preparing for The REIT Forum at the start of 2016 through the end of the latest month:

There are four major index ETFs we use for evaluating performance. They are:

• (MORT) - Major mortgage REIT ETF
• (PFF) - The largest preferred share ETF
• (VNQ) - The largest equity REIT ETF
• (KBWY) - The high-yield equity REIT ETF most retail investors follow

Annual comparison vs. each ETF:

Our performance vs. the average of the ETFs:

We evaluate alpha based on performance against the ETFs because it strips out the general change in our sectors.

The next chart shows the change in the value of our portfolio from month to month. We strip out the impact from contributions made during the month because, obviously, contributions are not returns.

The prior year is included as well to help investors see how the calculations work.

If anyone is confused by these calculations, let me know. I believe this transparency is crucial, so I’ll include an example showing every calculation if I hear that readers have any difficulty following it.

Sector Allocation Chart

The sector allocation chart helps to explain how we are thinking about risk and seeking returns:

Reminder About Cash (repeated)

I normally keep at least 6 months or more of living expenses in “cash”.  If you normally keep around $40k to $50k in “cash”, the difference between getting paid 5% and 0.2% is around $2k per year. 

I’m using (SGOV), (SHV), and (BIL) as my cash substitutes. These are short-term Treasury ETFs. Prices are extremely stable. Liquidity is excellent.

I use a Schwab business account that is not part of my portfolio. The only assets it holds are actual cash and cash substitutes (those 3 ETFs). 

Nearly all my expenses go through my credit card already (paid off in full each month).

I still have my checking through USAA because of the long history on those credit cards. If I need cash, I can sell Treasury ETFs and transfer the funds to my USAA account.

It takes a few days, but that’s fine.

This is a pretty nice return for cash I was going to have there anyway. 

Note: Some people think you don’t need a strong credit score after getting a mortgage. I disagree. The long history on those cards is extremely useful if I want to boost someone’s credit score. If I add someone to my card, their next update will show they have a card with 20 years of perfect history.

You can get scammed this way. You are liable for the bill. They can just charge the card and walk away. This doesn’t concern me because I keep a lower limit (such as $10k) on those cards and I’m only doing it for people I trust. If one of those people betrays me, I’ll count myself lucky that I found out for only $10k. For people who can’t afford to risk that money, this would be too dangerous. 

Housekeeping

We used to have a repeated section on strategy, but I wanted to shorten the update. 

I’ll be posting an article that covers our strategy in greater depth and just adding a link to that post.

We have a project underway to update our guides and improve the organization.

Recently Closed Positions with Returns

These are the positions closed during the prior calendar month. If you want to see positions that were closed before that, you can see the prior portfolio updates or use the Google Sheets. 

If we didn’t close any positions for the sector during the month, then the image will be blank. 

Note: By loading the Google Sheets, you can still see all of our closed positions. We only include the recently closed positions to reduce the size of the article:

Recently Opened Positions with Returns

All Open Positions by Sector with Returns

We will start with the open positions as of the end of the month. It often takes a few days to prepare this article, but the screenshots below are from the end of the prior month.

The cell with the ticker is grey if the position is in a taxable account. This was a request by a few members and there was no drawback to adding the information. All of the taxable positions are in equity REITs.

Preferred shares and baby bonds:

There are so many equity REIT positions we split it up into two images.Equity REITs first half:

Equity REITs second half:

Mortgage REITs and BDCs:

Other:

Note: The cash position shows no returns, but we are using short-term Treasury ETFs. We collect monthly payments on them. Earning 0% on our cash would be awfully silly. However, since we are treating the ETFs as cash, we don’t record any purchase or sale of the ETF. Let me know if this is confusing and I’ll provide a longer explanation.

Subsequent Changes

None yet.

Foreshadowing Potential Trades

This section is usually prepared shortly before publishing. The goal is to quickly cover ideas for trades. We aim to foreshadow our trades here, though the market may move in surprising ways. While the article takes days to prepare and documents prices and performance from the end of the month, the potential trades section is written last to provide the most up-to-date pricing.

Based on the change in relative prices as of 04/02/2025 here are some of the trades on my radar. 

Note: This section takes time to prepare. Market prices change. Therefore, the prices below may not be precisely the same as the price at publication.

Paid Section Begins