Seize the moves with Reit Index Futures

SINCE the first S-Reit listed on July 17, 2002, the sector's popularity in Singapore has grown significantly, with the sector generally known for high yield and low volatility. However, when market risk has bumped the tempo of trading, the broad volatility of the S-Reit sector has been seen to have doubled in the space of weeks. So, experienced investors have increasingly turned to portfolio products such as futures contracts to support potential returns with increased risk management.

Accordingly, on Aug 24, SGX is launching two futures contracts, the SGX FTSE EPRA Nareit Asia ex Japan Index Futures and the SGX iEdge S-Reit Leaders Index Futures.

Both futures are designed in accordance with Commodity Futures Trading Commission guidelines, which allows broad distribution to US and global institutional investors. Currently, the FTSE EPRA Nareit Asia ex Japan Reits Index consists of 29 stocks giving investors exposure to Reit securities listed across exchanges in Singapore, Hong Kong, Malaysia and Thailand.

The five biggest heavyweights of the iEdge S-Reit Leaders Index are Ascendas Reit, Mapletree Logistics Trust, Mapletree Commercial Trust, Mapletree Industrial Trust and Keppel DC Reit. Together these five Reits make up about half of the Index weightage and four of these Reits have booked double-digit gains in the 2020 year-to-date. This means the iEdge S-Reit Leaders Index has generated a more defensive performance than the broader regional benchmarks.

However, it is the bigger moves that made up the comparatively defensive decline that will be of interest to participants in the futures market.

In 2019 and 2016, key S-Reit indices returned more than 25 per cent with approximately 70 per cent of the index gains generated by price moves. Futures market participants can attempt to hedge downward price moves with short positions, in addition to attempt to capture upward price moves with long positions.

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Futures trading is for sophisticated investors and individual investors who are qualified to trade Specified Investment Products (more information at onlineeducation.sgx.com).