Growth in Reit ETFs driven by continued hunt for yield

SINGAPORE Exchange (SGX) lists three Exchange Traded Funds (ETFs) tracking the performance of Reits in the Asia-Pacific.

The three ETFs are NikkoAM-StraitsTrading Asia ex-Japan Reit ETF which tracks the FTSE EPRA Nareit Asia ex Japan Reits 10% Capped Index, the Lion-Phillip S-Reit ETF which tracks the Morningstar Singapore Reit Yield Focus IndexSM and the Phillip SGX APAC Dividend Leaders Reit ETF which tracks the iEdge APAC ex-Japan Dividend Leaders Reit Index.

The combined assets under management (AUM) of the three ETFs have grown 26 per cent from S$367 million in 2019 to S$464 million in 2020, with net inflows of S$105 million in 2020.

The three Reit ETFs generated an average three-year total return of 3.65 per cent as at end-2020, and outperformed the SPDR Straits Times Index ETF, which generated -2.16 per cent in total return across the same period.

The hunt for yield was a key theme underlying ETF trading activities in 2020. The three Reit ETFs were among the top dividend yielding ETFs listed on SGX last year.

The NikkoAM-StraitsTrading Asia ex-Japan Reit ETF was the highest yielding Reit ETF among the three with 12 month gross dividend yield of 5.12 per cent compared to Lion-Phillip S-Reit ETF and Phillip SGX APAC Dividend Leaders Reit ETF at 4.56 per cent and 2.93 per cent respectively.

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Of the three Reit ETFs, the Lion-Phillip S-Reit ETF is a pure S-Reits ETF, while other two provide exposure to Reits listed across Asia Ex-Japan and Asia-Pacific Ex-Japan markets which include Singapore, Hong Kong, Australia and other regional markets.

These Reit ETFs allow investors instant diversification across various Reit sub-industries and geographical regions at lower execution costs as opposed to building a similar portfolio by investing in individual Reits.

The average total expense ratio, which is a measure of the total costs associated with managing and operating the fund, of the three ETFs is 0.62 per cent as of Jan 20, 2021.

The three Reit ETFs are classified as Excluded Investment Products (EIP), which are generally for investors who expect low to moderate likelihood of loss of principal investment amount, with generally smaller potential returns.

Investors who invest in this product should have a basic understanding of financial instruments with standardised terms and no unusual or complicated features.

ETFs are investment funds listed and traded on a stock exchange. They aim to track the performance of an underlying index (like the Straits Times Index) or asset class (like commodities).

The combined AUM of all 31 ETFs listed in Singapore grew 57 per cent from S$5.49 billion in 2019 to S$8.60 billion in 2020. SGX RESEARCH

• For more research and information on Singapore's Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.

• Source: SGX Research S-Reits & Property Trusts Chartbook, data as at Jan 21, 2021.