Lion-Phillip S-Reit ETF generates -1.8% returns in 2020, expects 2021 recovery

THE Lion-Phillip S-Reit exchange-traded fund (ETF) generated -1.8 per cent in returns in Singapore dollar terms for the 12 months ended Dec 31, 2020, versus the benchmark's returns of -1.7 per cent.

The benchmark used was the Morningstar Singapore Reit Yield Focus Index.

Since its inception in October 2017, the ETF has returned 7 per cent, slightly below the benchmark return of 7.4 per cent.

The ETF manager described 2020 as a "challenging" year for the Singapore real estate investment trust (Reit) market, which caused a sell-down in the ETF along with the overall equity market and risk assets in general.

"Thanks to the swift and proactive policies introduced by governments and central banks globally, and the discovery of a Covid-19 vaccine in the fourth quarter of 2020, the ETF staged a rebound from its low, ending the year down about 6 per cent," it said.

It added that hospitality and retail Reits were more badly affected in 2020, but had a "meaningful bounce" in Q4 2020 as investors were encouraged by the discovery of an effective vaccine against Covid-19.

On the other hand, industrial Reits outperformed mainly due to a pick-up in e-commerce with many cities in lockdown. This drove up global demand for logistics space. The work-from-home trend increased people's data consumption, thereby boosting demand for data centres around the world.

The Reit manager said it remains positive on S-Reits in the longer term, as low interest rates are likely to support the sector's overall valuation.

"After a year of disruption, we expect earnings from retail and office Reits to recover in 2021. As more people get vaccinated through the year, we expect businesses and operations to normalise, thereby providing support for the Reits' rental income," it said.

"That said, given the uneven recovery from the pandemic globally, we expect international travel to remain muted this year, hence putting pressure on the hospitality names."

It also expects more Reits to make new and accretive acquisitions this year, making up for lost time in 2020.

"This should help to promote earnings growth in the longer term," it said.