Overview of SG REITs VS STI
There are many reasons why REITs should be part of your portfolio, or should I say..the bulk?

Let us jump straight in to look at FTSE ST REIT Index below, it has a good dividend yield of 4.9%. It is more defensive than stocks in theory, and has well defeated returns of STI (Straits Times Index) in 7D, 30D, YTD and 1 Year returns.

Below data is accurate as of 30 Apr 2020, taken from Reitas website.

Pitting SG REITs against S&P 500
Okay, let's not talk about STI? Let's compare S&P 500 against the SGX iEdge-SG REIT index. Using Tradingview charts, we have 5-year returns of 36.91% for S&P 500 and 8.96% for iEdge SG REIT Index. 

Yes, S&P 500 performed better. This is because S&P is more heavily weighted towards the Tech sector, with main constituents like Microsoft, Apple, Amazon, Facebook and Google, just to name the top holdings. What does REITs hold? Simply plain traditional Properties.

Analogically, you can say that REITs is the Ya Kun Kaya Toast, while S&P 500 is the Angus steak you have at restaurants. Both are great, why?

Looking from a yield perspective
S&P 500 has averaged dividend yields of 1.8 to 2% in the past 10 years, well a little closer to 2% due to COVID correction. However, the REITs listed in Singapore has average yield of 7.5%. Upon accounting for annual yield differences, the total returns inclusive of dividends of Singapore REITs is really not too far off from S&P 500. We have not even factored in the withholding taxes you have to pay if you were to invest in US based Vanguard S&P 500 etf.

Dividend pay-outs has its uses
Not putting S&P 500 down, do not get me wrong. It can be a great part of your portfolio, but let's not forget the potential cash flows you can get from REITs. Substantial dividend payouts allows for re-investment or help with daily expenses.

I have been investing in REITs under guidance of Vince of REIT-tirement. Well, no matter how I invest, I can never be too well diversified? Simply because we are the plain Singaporeans amongst the Rat race.

I thought of diversifying through REIT ETFs. So, what's on the menu?



1. Phillip SGX APAC Dividend Leaders REIT ETF (BYJ)

From the fund's website, the fund has 45.8% exposure to Australia properties, followed by 35.2% to Singapore and 16.6% to Hong Kong, with minimal exposure to Thailand.

It has 30 holdings, with greatest exposure to Retail at 38.9%. Below are top 10 holdings:

It has an estimated dividend yield of 6.27% with an exchange rate of 1.41 SGD to USD.  Dividends are paid out semi-annually in January and June.Well, the overseas exposure do come at a cost, where it has the greatest expense ratio of 0.90% out of the 3 REIT ETFs. It carries more risk too, as it has dropped a whopping ~30% from $1.50 to $1.08 as of 16 May 2020.


2. NikkoAM-STC Asia REIT (SGX: CFA)

The full name of this ETF is "NikkoAM-Straits Trading Asia ex Japan REIT ETF". It is largest in terms of size with fund size of $210m as at 15 May 2020 which probably explains the lower expense ratio compared to the Phillip REIT ETF above.

It holds majority Singapore listed REITs, followed by Hong Kong listed REITs, and has a small exposure to Malaysia REITs and Thailand REIT. 75% of holdings are in Singapore listed REITs.

With 29 holdings, it has the largest exposure to the Retail sector at 36.2%. Industrial is next at 27.6% and office comes next at 15.7%.

Sector breakdown:

Top 10 holdings:

It has given a total of 5.23 cents in quarterly dividends in the last 1 year. This translates into an annual yield of 4.97%. I would say it is definitely more Singapore oriented and has access to benefits of Singapore fiscal policies in this COVID environment. Hence, this seems to be slightly more resilient compared to Phillip REIT ETF, where it fell only about 16% from pre-COVID price of 1.25 SGD to 1.05 SGD per share.

3. LION-PHILLIP S-REIT (CLR)

Slightly smaller in fund size compared to Nikko AM REIT ETF, it boasts to be the only ETF solely focused on SGX listed REITs. This will mean that Forex risks or any potential tax issues is minimised by investing into this REIT.

It pays a semi-annual dividend every January and July. A glance through its full-SG REIT portfolio shows that it is not invested into the smaller names like ESR Reit, or Sabana REIT. The only small name I saw is First REIT, and it is also vested in US properties via Manulife US REIT.

Interestingly, most REIT it holds has a market cap of above $2B SGD:

Having read the Factsheet of the fund, it seems to be the only ETF that is completely passive, meaning, it completely aims to mirror the performance of an index. 

Uniquely, it seems to be the most COVID-resistant ETF, as it has the largest exposure to Industrial sector. Industrial stands at slightly more than 30%, while Retail makes up less than 25% of its portfolio. This is where it stands out from the other 2 ETF, other than being 100% SGX based.
I also found out that it pays a TTM dividend yield of 5.9%, with its semi-annual payouts in Jan 2020 and Jul 2019. ETF price has fallen from pre-COVID range of $1.18 SGD to $0.965 SGD, an 18% fall. This is not too bad compared to Phillip SGX APAC REIT ETF's 30% fall.

Which ETF would you invest in to diversify your portfolio?

Well, I would pick Lion-Phillip REIT ETF. I am more familiar with SG listed REITs and will be more comfortable investing something I am more familiar with. SG listed REITs also own overseas properties, hence, I do not feel the need to buy foreign listed REITs to get more overseas exposure.

Despite not paying the best dividend among the 3 REITs, it has a low expense ratio of 0.60%, and has the lowest bid-ask spread. 

It is still painful to see a 0.60% fee every year, however, I still feel it beats buying so many REITs to diversify your portfolio and paying more brokerage fees if you are a small-time investor like myself.

Which ETF would you pick? Feel free to comment below and share your ideas with us!


~Mr Llama

2 Comments

  1. How does a REIT ETF handle rights issue?
    How do they ensure they have the cash to participate?
    With individual REITs, our value gets diluted if we don't take the rights.

    ReplyDelete
  2. Hi lumpak!

    All ETFs, or unit trusts hold Cash & Cash equivalents. Taking reference from Phillip SGX APAC dividend etf annual report, we know that the ETF has 1.10% in cash or equivalents as of 30 Sep 2019.

    These cash are often used for portfolio re-balancing acts as the ETFs aims to mirror a particular index.

    It makes total sense for an ETF to subscribe to any rights issue, it benefits themselves and ETF holders.

    However, the ETF will have to follow up with re-balancing acts to reach their desired portfolio allocation as subscribing to the rights causes them to be more invested in a particular REIT.
    Hope this helps!

    Reference:
    https://phillipfunds.com/wp-content/uploads/2019/03/pdf-1.png

    ReplyDelete

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