Interest rates are falling. Are REIT ETFs worth buying at 6% dividend yield?

What happened?

Interest rates have been falling recently.

This has led to a bounce in the share prices of Singapore REITs.

Recently, we shared about 3 Singapore REITs with dividends yields of above 5%.

However, some investors have asked if it is possible to gain exposure to Singapore REITs without selecting individual REITs. 

In this episode of the Beansprout Podcast, we sat down with Bruce Zhang, Head of Fixed Income at CSOP Asset Management, to understand what falling interest rates mean for Singapore REITs, and how REIT ETFs offer investors a simple way to gain exposure to Singapore REITs. 

Catch the full conversation in the video below.

Interview with Bruce Zhang, Head of Fixed Income at CSOP Asset Management: What the recent Fed rate cuts mean for investors of cash products, bonds, and REITs

6:12 - Interest Rate Environment and Market Impact 

• The Federal Reserve began cutting rates in September 2024.

• Lower interest rates generally benefit risky assets, particularly those sensitive to funding costs and interest rate environments.

9:25 - Technology Stocks Performance

• US tech stocks rallied despite high interest rates, driven by fundamental growth from the AI boom.

• AI developments created numerous application scenarios for tech platforms and benefited upstream hardware producers like NVIDIA and TSMC.

• Hong Kong and China tech stocks initially rallied due to DeepSeek, then gained momentum as investors shifted capital to these markets due to improving earnings despite macro recovery pressure.

• Investors can pick single stocks but face challenges with access issues for non-Singapore stocks and potential liquidity challenges.

• ETF vehicle provides alternative: CSOP launched Southeast Asia Tech ETF in 2023 in Singapore and cross-listed to onshore China.

18:18 - Singapore REITs and Interest Rates

• Singapore REITs are direct beneficiaries of lower interest rates.

• Lower funding costs enables asset enhancement initiatives, M&A activities, and higher dividend payments

23:41 - Retail Mall Challenges and Strengths 

• Operating costs rising, labor costs increasing, more F&B closures affecting some underlying tenants.

• REITs with dominant assets or dominant locations can always attract new tenants to rent vacant spaces.

• From occupancy perspective, except for hotels, all other sectors maintain higher than 90% occupancy rates.

31:15 - How to gain exposure through REIT ETFs

• REIT ETFs are seen to be somewhere between bonds and equity.

• The CSOP iEdge S-REIT Leaders Index ETF offers a dividend yield of close to 6% 

• This is attractive versus most equity peers, but volatility just under 15% annualised standard deviation.

• REITs have growth component mainly through rental growth and M&A activities, treating it as "fixed income plus" product.

37:14 - About CSOP Asset Management 

• One of largest ETF providers in Hong Kong and Singapore.

• Actively seeks stock lending opportunities with large stock inventory behind to generate risk-free alpha 

• Provides market view updates and dedicated capital marketing supporting liquid ETF vehicles with tight bid-ask spreads.

Read also: Should you buy individual REITs or a REIT ETF? 

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