Monday, October 10, 2016

Thoughts on the New REIT ETF

In case you haven't heard the news, Phillip is going to list a dual currency REIT ETF on the SGX.

Quick points to note:

  • dual listed in USD and SGD
  • total expense ratio: 0.65% pa
  • dividends paids semi annually
  • dividend forecasted at 5.2%
  • P/B Ratio at 1.17
  • currently made up of 30 REITs from 3 countries
  • 70% representation of the APAC ex Japan REITs by market cap

The idea of a REIT ETF is something that I've ever mentioned back in Jan 2015. Funny enough, this was mentioned at the 2015 REIT Symposium and again in 2016, but it looks like the REIT ETF is quite different from what industry experts were expecting (SG-REIT 20 Index).

Personally, I'm a big fan of REITs. I don't think that they are the best asset class ever, but I think that as an asset class, they suit me as an investor really well. I understand how it works, I've done my research on them and I've my own metrics that I use to help me evaluate them. It just suits me, but like I said, I don't think that they are objectively the best asset class and it really depends on your style and preferences as an investor.

I've done my own study, which compares dropping $1m into a local property or into REITs and my personal conclusion is that as long as the property invested is unlevered, it is more attractive to invest in REITs. Of course, you can get a loan for 200-400% and then buy other / bigger properties, but I don't think that it is a fair comparison to me because the risks are also getting upsized. The idea of having a liability bigger than the asset you just purchased as an investment just doesn't go down well with me, which I why I assumed just straight up cash investing as my baseline to compare. 
I am assuming it's a one-time lump sum investment, something that doesn't require additional cash injections. Something that maybe a 55 year old planning for retirement might want to consider. Both will appear as $1 mil assets in my portfolio and will require a $1 mil capital outlay. So while "leverage" is different, I'm trying to compare bang-for-your-buck. - GMGH (Jan 2015)
I know that Singaporeans love properties and owning plenty of them, but after what I've found out for myself, I don't think I'd do that. As a purely financial investment, REITs is quite clearly the superior investment vehicle to me. If you want to compare it with loans and leverage, by all means. But it is paramount to know that once you start using leverage, the risk / reward ratio gets skewed and you're also putting yourself at the risk of negative equity, which is not possible with REITs.

With all that said, you would imagine that I'd be loving this idea and jumping on the bandwagon to promote this product, right?

Actually, as interesting as I see it, I think I'd just be watching how it all turns out, especially with how they handle rights issues and dividends. I'm also going to be looking out for the liquidity on this issue, because as most people should know, the SGX has pretty thin liquidity, and this goes especially so for dual-listings.

I'm still more than happy to selectively include and exclude REITs from my watchlist and also buy them individually, instead of being forced to buy them as a bundle (allowing me to buy distressed one and sell exuberant ones). I suppose that for the average person, this is a pretty good way to get exposure to REITs, but for people who are looking something a bit more advanced, this might not do the trick.

Anyway, this is an ETF. It isn't a stock, so a "successful" IPO is not going to blast off and create massive capital gains. It's just going to track the returns of the REITs in its index. And that also means that it could very well drop below IPO prices if all its underlyings perform poorly in the future (something which I expect to happen).

My plan of attack is to just wait and see. I don't see any need to rush into this.


  1. questions:
    1. how do i subscribe to it?
    2. is PB of such ETF at 1.xx a bit high compares with existing SG REIT counters
    3. why dual currency listing, what is the loophole here?

    1. Hi Bruce,

      1) I think there's a newspaper ad about how to subscribe for it. Probably through the ATM or ibanking.

      2) Yes, the FTSE REIT index has a PB of 1.03 while the ETF is at 1.17.

      3) Dual currency is probably because SGD investments is the minority in the portfolio. The USD is good for their HKD investments. Also, making it available in USD also draws in foreign investors who have regional interest. However, I think that the dual listing might suck out much needed liquidity in this ETF.

  2. Good assessment. My guts tell me to wait n see.

    1. Thanks anon. I'm really interested in how liquid it will be. Not sure if there are market makers and who would be assuming those roles. Just wait and see lor, haha.


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