Vanguard Real Estate Index Admiral (VGSLX) is an actively managed sector equity fund which follows the MSCI US Investable Market Real Estate 25/50 Index as its benchmark index. This benchmark index comprises stocks of real estate investment trusts, management and development companies and other related securities relating to real estate. VGSLX’s index covers both large and mid-size REITs.

This fund seeks to generate a high level of dividend income and long-term capital growth through REIT investments, which own properties like office buildings and malls that generate rental or lease payments as well as potential growth through property appreciation. Furthermore, in addition to REIT shares being held directly, VGSLX may invest in REIT-related securities like preferred stocks and bonds.

As its name implies, VGSLX tracks the MSCI US Investable Market Real estate 25/50 Index which comprises public REIT stocks classified under Global Industry Classification Standard as real estate-related REITs. This broad approach reduces risks associated with specific sectors or stock markets while increasing diversification benefits.

VGSLX’s low fees are its main competitive edge. Its expense ratio ranks among the bottom quartile of U.S. REIT peer group and low turnover is associated with minimal transaction costs; both features allow it to generate strong category-relative returns over the long-term while mitigating risks associated with actively managed funds.

As with other REIT funds, VGSLX exposes investors to interest rate risk and other traditional market risks, including REIT stock price decline and rising interest rates which increase financing costs for REITs. Bond allocation helps mitigate interest rate risk.

One risk for this fund lies in its REIT exposure; REIT returns may lag other stocks and represent a distinct style risk. To reduce concentration risk, unlike many active REIT funds, VGSLX limits the size of its top 10 holdings while avoiding expensive names in its sector – currently comprising only 36% of its portfolio! Specialist REITs help ease concentration concerns further while their lack of size reduces overall diversification concerns compared to an average REIT fund.

Investors should view VGSLX as an important addition to their REIT holdings, given its strong performance since adopting its current index in February of 2018. For tax advantages, having it within a variable annuity would be advantageous; otherwise, pair this fund with an exchange-traded fund or mutual fund for greater diversification in your taxable account.