This weekend I decided to review the performance of the Reits “ETF” available to local investors. Thinking it was probably a boring routine task, BOY!, I was stunned by what I found. Hence, I decided to share them with you below …
There are 2 listed Reits ETFs on the Singapore stock market. They are:
- Philips SGX APAC Dividend Leaders REIT ETF
- Nikko AM-Straits Trading Asia ex Japan REIT ETF
(1) was started in October 2016 and provided an opportunity to invest in REITs with significant exposure to the Australian market. About 70% of the ETF is made up of Reits listed on the Australian stock exchange. 20% is in Singapore and 10% in Hong Kong
(2) was started in March this year and focused primarily in Reits listed in Singapore (70%), Hong Kong (25%) and Malaysia (5%).
If you are interested to know more about these 2 Reit ETFs, you can find very good write-up by ReitsWeek: Singapore REIT ETFs: Nikko AM-Straits Trading and Philips-SGX APAC REIT ETFs compared
The main attraction of these Reits ETFs is that they provide exposure to Reits beyond Singapore shores and diversification of risks for a relatively small fee of ~0.5% pa.
Besides these 2, investors also have the option of buying Phillip Singapore Real Estate Income Fund, a unit trust by Philip Securities. It invests only in the Reits listed in Singapore. Hence, a very focused fund compared to the other 2 ETFs. Being a unit trust instead of an ETF, you can expect it to have a higher management fee. It will cost you ~1.2% per year. More details: Here
For comparison with the above ETFs/fund, I have also created a Top-20 WarriorTan SG Reit Index (or WTSG for short). I narrowed down my watch list to 20 Reits that I will like to invest in. In my opinion, they are fundamentally strong and well managed Reits companies. No surprises that they are the big names in the SG Reits. You can find the list of these 20 at the end of this post 🙂
WTSG index is made up 1000 shares of each of these REITs. Therefore, the higher the price share of the REIT, the higher the weightage it will have. If I have time, I may do a variant – WTSGV – in which I will assume equal weight for every one of them.
So, we have 4 “indexes” to compare:
- Philips SGX APAC Dividend Leaders REIT ETF (BYJ)
- Nikko AM-Straits Trading Asia ex Japan REIT ETF (CFA)
- Phillip Singapore Real Estate Income Fund (PUT)
- Warriortan SG Reit Index (WTSG)
Using 1st April as the starting date (reason: CFA started trading just before that) and indexed that day price as 100, you will get a graph like this (1 April to 1 August 2017),
Surprise, Surprise !!! When I thought all the 4 would have comparable performance, BYJ clearly underperform compares to the other 3. The only reason is because it is heavy Australian weighted so my guess is that the REIT companies in Australia did not enjoy the phenomenon price increases like its SG counterparts.
Although CFA is very close to PUT and WTSG, it underperformed both of them by 0.5 to 1.0% in absolute price increase. My only guess is that similarly HK and Malaysia Reits did not have the same price increase as SG Reit in the last few months.
PUT’s performance mirrored my desired WGST closely. So, I can just buy PUT instead of buying individual REITs. Something I will definitely consider when the share price of Reits (i.e PUT) decline to an attractive level. Then, I will set up a monthly investment scheme to take advantage of staying invested always and doing dollar cost averaging when the situation arises.
An attraction of a REIT investment is the ability to receive regular dividend distribution. These 4 are no exceptions and they have the following dividend yields:
- Philips SGX APAC Dividend Leaders REIT ETF (BYJ) = 4.1% (semi-annual)
- Nikko AM-Straits Trading Asia ex Japan REIT ETF (CFA) = 4.6% (quarterly)
- Phillip Singapore Real Estate Income Fund (PUT) = 4.9% (quarterly)
- Warriortan SG Reit Index (WTSG) = 5.9% (as and when the Reits declare dividends)
Although PUT performance was on par with WTSG, its historical dividend yield was 1.0% less. This is quite close to the management expenses of 1.2% and that is probably where the difference in dividends went 😦
Well, that is the price to pay for saving time and efforts to research and make buy/sell decision on individual stocks, avoiding regret decision (and probably many sleepless night after that) and having the assurance that you remain invested in the market regardless of market condition (if you take on a regular investment scheme). There is also a transaction cost involved in buying and selling of shares in building up the WTSG portfolio and they are not small too (at least $25 per transaction), hence, on the whole, I think PUT offers a good choice to invest in local SG Reits
BYJ and CFA have lower dividend yield compared to PUT and WTSG. Probably Reits in Australia, HK and Malaysia have lower dividend yields than SG Reits.
So is BYJ and CFA poorer investment option than PUT and WTSG? It would be a poorer choice for the last few months but they may not be a bad investment. Technically, they offer greater diversification of risks compared to PUT and WTSG. I bet in a correction market, their value will fall less than PUT and WTSG. If you are an income investor, you may want to consider them in your suite of investments too.
If you want a broader diversification, you can consider the Vanguard REIT Index which invests in mainly US Reits. Its expense ratio is low at 0.26% per year. Dividend Yield is 3.13%. It is listed on the US stock exchange. Over the same period (1Apri – 1Aug), its share price is hardly changed, very much like BYJ.
However, whenever you invest in US companies, you need to be aware that the dividend they declare is subjected to 30% withholding tax for a Singapore investor and therefore, the effective dividend yield is only 70% of what they declare. In this case, it’s only 2.1% yield.
As you may notice again, the “law” of high risk (less diversified) high return comes in again.
I hope you find something useful in this blog post for you.
Warriortan SG Reit Index
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