Friday, October 4, 2013

Phillip Singapore Real Estate Income Fund

Since my last update on my bond unit trusts, I've promised to talk about my other investments, but I just haven't found the time to, but now here it is.

Phillip Singapore Real Estate Income Fund

Well, like I always said, this is the Singaporean's wet dream. Yields and property, just what every mother son uncle grandmother knows here in Singapore. Small country with ever increasing people = big property prices.

Increasing local property prices and the global quest for yield, as well as these being relatively new and interesting products to the Singaporean investor, has helped rally these stocks since the end of the GFC. This caused REITs to suddenly become a fad investment and peaked out in May. (see chart)

Fears of US tapering, which will increase interest rates and cause capital outflow caused the main scare. The next factor was also the government trying to push down property prices in Singapore. Though the regulations were mainly for residential properties, I think it affected the broad property market as well.

So, from it's mighty highs of 892.06 on the FTSE REIT index in May, it recently bottomed out at end August at 691.33 and hovered around the 700 range for about 2-3 weeks. This was a massive 22.5% drop! This was compared to the STI feeling a relatively smaller correction of about 10%.

The market then quickly rallied on the back of news that the Fed was not going to taper, and that's when I quickly decided to hop back on the bandwagon as well. I got in when the market closed at 746, which is 8% off it's recent bottom price and a very nice and cool 16.4% off it's May peak. So about a 70% margin of safety? Hopefully, that's what I tell myself before I sleep at night.

Since then the index has been steadily dropping, probably a slight correction from being overbought of the Fed news. It's okay though, I still think I've got it as a reasonable bargain, which is pretty much where the market was one year ago.

So, why did I choose to go into this fund? Well, it's a wet dream like I mentioned before. Low capital outlay, broad diversification, low index tracking error (I wish they would give the NAV only benchmark though), distributing dividends, reasonable management fee, I actually really like it!

Expense ratio is sitting pretty at a nice low 0.80%. That is quite comparable to ETFs, making it very reasonable at first glance. Ex-dividends for Q3 has already been announced and dividends is set to be the same at 0.0155, making yield on my cost to be 4.92%! Sounds good, but then you realize that the average yield for REITs at the end of September is 6.56%, bummer. If you think about about, the premium that you're paying for using the fund is 1.64%. I'm just going to take it that the management fee is actually 1.64%, haha. I guess that's the price to pay for trying to get in with the big boys. Roll like they do, but of course with a cut.

The fund is able to allocate 10% of its allocation overseas, I guess that helps with the diversification as well as yield? They also engage in active management, so I guess I'll be looking at better capital appreciation and less volatility as compared to the underlying index? So all this creates that premium? Only will tell I suppose, but it's nice knowing that I'm an owner of a lot of property in Singapore now, ahaha!

[Purchased on 20th Sep 13 @ $1.261]

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