Bond yields are falling. Time to look at REIT ETFs?

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ETFs, Bonds

By Beansprout • 11 May 2023 • 0 min read

The CSOP iEdge S-REIT Leaders ETF currently offers a dividend yield above the cut-off yield of the latest 6-month Singapore T-bill.

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This post was created in partnership with CSOP Asset Management Pte. Ltd. All views and opinions expressed in this article are Beansprout's objective and professional opinions. 

We shared earlier that we have seen a trend of government bond yields coming down recently. 

The increased ease of T-bill applications using CPF funds seems to have led to more demand for the latest T-bills, resulting in an even lower cut-off yield in the latest 1-year government bond yield auction.

In fact, the yield for the 20th April 1-year T-bill fell to 3.58% p.a., below the market’s expectation of 3.7%.

As a result, some investors may be looking for alternative investments that can provide them with a higher yield. 

Other than exploring the 12-month fixed deposits offered by the various banks which offer interest rates of up to 3.75%, we have also seen more investors asking about Singapore REIT ETFs

So, what are REIT ETFs?

Let’s quickly explore what real estate investment trust (REIT) exchange-traded funds (ETFs) are about and the benefits of investing in them. 

REITs pool money from investors like you and me to invest in a portfolio of income-generating real estate assets. The assets can range from shopping centres, offices, logistic warehouses and even data centres. In exchange for our investment, we are entitled to dividend distributions at regular intervals. Currently, there are 42 REITs and property trusts listed in the Singapore stock market. 

Instead of picking individual REITs to invest in, there’s a simpler way to invest in a diversified basket of REITs at one go, and that’s where ETFs come in. 

Singapore REIT ETFs offer instant diversification across various industries and geographies, are professionally managed, and offer a low-cost way to gain exposure to the REIT asset class. 

image.png
Source: SGX

What you need to know about the CSOP iEdge S-REIT Leaders Index ETF

One of the latest REIT ETFs to be listed is the CSOP iEdge S-REIT Leaders Index ETF, which debuted on 18 November 2021. 

Each ETF tracks a particular index. As for the CSOP iEdge S-REIT Leaders Index ETF, it seeks to replicate as closely as possible, before fees and expenses, the performance of the iEdge S-REIT Leaders Index. 

The iEdge S-REIT Leaders Index is an adjusted free-float market capitalisation-weighted index that measures the performance of the most liquid REITs in Singapore. The index is compiled and maintained by SGX. 

The ETF’s manager uses a passive replication strategy to track the performance of the iEdge S-REIT Leaders Index. This means that the CSOP iEdge S-REIT Leaders Index ETF holds the constituents of the underlying iEdge S-REIT Leaders Index with a similar proportion as the index. 

Investors can invest in the CSOP iEdge S-REIT Leaders Index ETF in both Singapore dollars (ticker SRT) and US dollars (ticker SRU), with the trading board lot size being 1 unit. 

What’s CSOP iEdge S-REIT Leaders Index ETF’s Yield and Distribution Frequency?

According to SGX (as of 31 March 2023), the last twelve-month dividend yield of the iEdge S-REIT Leaders Index is 6.1%.

The CSOP iEdge S-REIT Leaders ETF has a semi-annual distribution policy, with distributions typically declared in January and July each year. There are two currency classes listed on SGX. Distributions for both SRT and SRU will be made in Singapore dollars. 

What are the top 10 holdings of the CSOP iEdge S-REIT Leaders Index ETF?

In all, there are 25 constituents in the iEdge S-REIT Leaders Index and as of 21 April 2023, the 10 largest REITs as part of the index are:

REIT

Ticker

Weighting

Mapletree Logistics Trust

ME8U

10.29%

CapitaLand Ascendas REIT

A17U

10.16%

CapitaLand Integrated Commercial Trust

C38U

10.16%

Mapletree Commercial Trust

N2IU

10.05%

Mapletree Industrial Trust

M44U

9.54%

Frasers Logistics and Commercial Trust

BUOU

9.20%

Suntec Real Estate Investment Trust

T82U

6.22%

Keppel DC REIT

AJBU

5.75%

Keppel REIT

K71U

5.02%

Frasers Centrepoint Trust

J69U

4.61%

Source: SGX, as of 21st April 2023

Even though all the REITs are listed in Singapore, in terms of geographic revenue, the ETF still provides a nice diversification among countries such as Australia, United States, and China. 

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Source: iEdge S-REIT Leaders Index Factsheet (https://www.sgx.com/indices/products/sreitlsp#Product%20Information and https://api2.sgx.com/sites/default/files/2023-04/S-REIT_Factsheet_20230331_1.pdf)

 

What’s the CSOP iEdge S-REIT Leaders Index ETF’s expense ratio?

An investor’s annual cost of investing in an ETF is shown by the expense ratio. It’s an annual ongoing expense that investors have to pay the ETF managers to maintain the ETF. 

As an investor in ETFs, we would want the fees incurred in managing the ETF to be kept as low as possible. The expense ratio of the Singapore REIT ETFs ranges from 0.55-0.80% per annum. 

According to the CSOP iEdge S-REIT Leaders Index ETF website, the expense ratio is capped at 0.6%. This would be at the lower end of the range of expense ratios for Singapore REIT ETFs.

How is the CSOP iEdge S-REIT Leaders Index ETF different from other REIT ETFs?

One of the characteristics of the iEdge S-REIT Leaders Index is that apart from giving a higher weightage to stocks with a higher free-float market capitalisation, the weighting of the constituent REITs is also adjusted for liquidity. 

What this means is that the REITs with a higher trading volume would make up a larger portion of the index. 

In particular, each REIT is assigned an adjustment factor on its free-float market capitalisation based on its daily trading velocity.

The REITs which rank in the top 25% in their daily traded velocity are given an adjustment factor of 1.00, while the REITs which rank in the bottom 25% are given an adjustment factor of 0.25.

Such methodology tracks fund flows and sector rotation among REITs as an asset class, offering investors exposure to the right sectors that better represent the current market or economic conditions.

This means that the index will be made up of more of the REITs that are large and liquid, which explains why the ETF is called the CSOP iEdge S-REIT Leaders Index ETF!

Quartile

Adjustment Factor

First (Bottom 25%)

0.25

Second

0.50

Third

0.75

Fourth (Top 25%)

1.00

 

How to buy the CSOP iEdge S-REIT Leaders Index ETF?

Investors who wish to invest in the ETF can do so via their regular local stock brokers, just like how they go about buying regular stocks for their portfolio. 

If you are looking to purchase the CSOP iEdge S-REIT Leaders Index ETF through a regular savings plan, you can now do it through DBS Invest-Saver too. 

The Singapore dollar version of the ETF is priced at S$0.878 per unit while the US dollar version is selling at US$0.662 as of 5 May 2023. 

The CSOP iEdge S-REIT Leaders Index ETF is also classified as Excluded Investment Product (EIP). This means that investors do not have to specifically qualify to trade it, unlike a Specified Investment Product (SIP) such as structured warrants and Daily Leverage Certificates (DLCs). 

image.png
Source: SGX

 

What are the risks of the CSOP iEdge S-REIT Leaders Index ETF?

The CSOP iEdge S-REIT Leaders Index ETF is still a relatively new product, and it has not been around long enough to have a long track record of performance. 

However, we can get a glimpse of its historical performance by using the iEdge S-REIT Leaders total return index as a proxy. 

The index generated an annual total return of 6.4% from 29th April 2016 to 31st March 2023. This would exceed the performance of other global major REIT indexes, such as the FTSE EPRA Nareit Global REITs total return index, and FTSE EPRA Nareit Asia REITs total return index. 

image.png
Source: Bloomberg, as of 20230331 all in USD terms. Past performance is not indicative of future performance 

Additionally, the real estate market is cyclical, and there is always the potential for losses. 

To find out more about what to consider before investing in a REIT ETF, you can read more here

What would Beansprout do?

For investors who are looking for a higher yield compared to the 1-year T-bills and bank fixed deposits, REIT ETFs could be something to explore. 

The CSOP iEdge S-REIT Leaders Index ETF allows you to gain exposure to large and liquid Singapore REITs (S-REITs) in a convenient way. 

If you are looking to diversify your portfolio and earn a dividend income, you can find out more about the CSOP iEdge S-REIT Leaders Index ETF here.  

Important information

This advertisement is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by CSOP Asset Management Pte. Ltd. (“CSOP Asset Management”).

Past performance or any prediction, projection or forecast is not indicative of future performance. The Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of CSOP Asset Management or the website (https://www.csopasset.com/sg/home.html) before deciding whether to invest in the Fund.

The information contained herein may not be copied, reproduced or redistributed without the express consent of CSOP Asset Management. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, CSOP Asset Management does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. CSOP Asset Management accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document. This advertisement has not been reviewed by the Monetary Authority of Singapore.

The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per share of the ETF. The ETF may also be delisted from the SGX-ST. Transaction in shares of the ETF will result in brokerage commissions. Listing of the shares does not guarantee a liquid market for the shares. Shares of the ETF may be bought or sold throughout trading hours of the SGX-ST through any brokerage account. Investors should note that the ETF differs from a typical unit trust and shares may only be created or redeemed directly by a participating dealer in large creation or redemption shares. Investors may only redeem the shares with CSOP Asset Management under certain specified conditions.

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