Americans are leaving the North East and are moving west and south, according to a report by United Van Lines detailing the net migration of every U.S. state in 2018.
In the chart below, blue represents the states that more people are moving to, and yellow represents the states people are moving away from.
[Source: United Van Lines]
We compared this chart to the current weightings for USREX, the domestic real estate investment index on which I work. To explain the data briefly, USREX doesn’t allocate investments on the state level, it invests on the city level, so the chart you’ll see below is an aggregation of all its city weightings for each state.
[Source: Bowyer Research]
The above chart shows our over/underweight percentage in residential real estate compared to a cap-weighted index in every U.S. state. The darker the green, the higher our overweight in that state.
In many of the states that are growing -- Florida, South Carolina, Idaho, and Arizona just to name a few -- we’re overweight, and in many of the states that have lost population -- New York, Kansas, Montana -- we’re underweight.
The tendency of a cap-weighting approach is to overweight based on past performance, and that can be seen on the state level, where states that people are moving away from are still receiving relatively high weightings. A productivity-weighted approach, on the other hand, has tended to overweight USREX in the states that are attracting more new residents.
So, when you follow a cap-weighted approach, every time you put a dollar in, that strategy will tend to move a disproportionate share of that dollar into the states that it seems people are tending to move out of. Do you really think moving money into states that people are moving away from is the best way to allocate capital? Neither do we.