Singapore is known to be a hub for real estate investment trusts (REITs).
With a wide variety of REITs listed on the Singapore Exchange (SGX: S68), investors are spoiled for choice.
REITs also offer a simple way for investors to diversify their investment into multiple properties, rather than tying up their funds in a single building.
REIT exchange-traded funds (ETFs) take the idea of diversification one step further.
One such example is the Phillip SGX APAC Dividend Leaders REIT ETF (SGX: BYI), which tracks the performance of the iEdge APAC Ex-Japan Dividend Leaders REIT Index (SGX: ^BYJ).
If this index-tracking fund sounds attractive, take note of these key facts before you invest (figures are as of 30 September 2021, unless otherwise stated):
- The index tracks 30 REITs that pay the highest dividend yields in Asia, excluding Japan. The dividend yield of the constituents is computed by multiplying the units’ free float and the trailing 12-month dividend per share of each REIT.
- The Phillip SGX ETF consists of Asia’s largest REITs such as Link REIT (SEHK: 0823), Scentre Group (ASX: SCG) and CapitaLand Integrated Commercial Trust (SGX: C38U). Link REIT is the third-largest retail REIT in the world, and manages a portfolio worth HK$207 billion.
- The fund mainly invests in REITs with diversified asset classes. Such diversified REITs form 41.7% of the fund’s allocation, with 27.7% allocated to retail REITs.
- With a fund size of US$17.3 million, the Phillip SGX ETF is a relatively small fund. In contrast, the SPDR STI ETF (SGX: ES3), which tracks the Straits Times Index (SGX: ^STI), has assets under management of S$1.7 billion as of 14 October 2021.
- The primary currency of the Phillip SGX ETF is the US dollar, with a SG dollar version also available. These options give investors a choice on which currency they prefer to hold their investments.
- The annualised return of the Phillip SGX ETF (US dollar) since the fund’s inception in October 2016 is 5.62%. Dividends play a significant role in the returns, with the ETF offering a dividend yield of 4.27%. In comparison, the SG dollar version of the fund has an annualised return of 5.07%.
- Since the fund’s inception, the benchmark index has provided an annualised return of 6.76%, giving the US-dollar fund a tracking error of 1.14%.
- The fund’s expense ratio is 1.16%, implying that this is a relatively expensive way of investing in the underlying REITs.
Get Smart: Evaluate your options
REITs are an attractive asset class for income-seeking investors due to the steady stream of distributions they pay out.
They also tend to offer higher yields than the Straits Times Index.
However, your REIT investment strategy may affect your returns negatively, depending on the level and frequency of fees you pay.
Funds with higher expense ratios will eat into your returns and can make a significant difference in the long run.
Apart from the Phillip SGX ETF, there are two other REITs ETFs listed in Singapore, namely NikkoAM-StraitsTrading Asia Ex Japan REIT ETF (SGX: CFA) (SGX: COI) and Lion-Phillip S-REIT ETF (SGX: CLR).
All three funds differ in their portfolio constituents, expense ratios, and frequency of distribution.
Alternatively, you may also choose to invest directly into individual REITs through your broker.
A more hands-on approach allows you to customise your real estate portfolio based on your preferred property types and geographic exposure.
Smart Investors should consider all available options carefully before committing their hard-earned cash into any investment.
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Disclosure: Herman Ng owns shares of CapitaLand Integrated Commercial Trust.
