Investors keen to get more exposure to real estate investment trusts (Reits) in Asia will have another option in an upcoming exchange-traded fund on the Singapore Exchange.
The Asia ex-Japan Reit ETF by Nikko Asset Management (Nikko AM) and Straits Trading will track the performance of large- cap, well-managed Reits in the region outside Japan, Australia and New Zealand.
An ETF is a listed and tradable fund that replicates the performance of a selected index or commodity. In this case, it is benchmarked to the FTSE Russell Epra/Nareit Asia ex-Japan Net Total Return Reit Index.
This index is part of a widely used benchmark for ETFs, with around US$10 billion (S$14 billion) worth of funds tracking it.
Nikko AM international product head Phillip Yeo told The Sunday Times that Reits selected for the index have to meet strict criteria in areas such as market capitalisation and liquidity.
The index, which reviews its make-up twice a year, comprises 23 Reits in Asia, including 13 of the big names listed here - such as Ascendas Reit, CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust. The top three index constituents by weightage are Ascendas Reit, CMT and Link Reit in Hong Kong.
The ETF, which is starting with an initial fund size of US$30 million (S$42 million), will be put up for an initial offer tomorrow, before its SGX listing on March 29.
Mr Yeo said the ETF's underlying portfolio will deliver a gross yield of around 6.1 per cent, based on a weighted average calculation of Bloomberg's forward yield forecast for the 23 Reits.
"We believe this fund can deliver at least a 5 per cent yield fairly regularly, in line with Epra/Nareit Index's historical range of 5 to 6 per cent."
Reits are a popular investment here, particularly for those with income-generation in mind, given their stable yield.
The Nikko AM ETF follows the Phillip SGX Apac Dividend Leaders Reit ETF, launched in October last year.
The Phillip product tracks the performance of 30 highest total dividend-paying Reits in the Asia-Pacific outside of Japan.
Mr Yeo believes that the investment outlook for Reits will remain positive, at least for the next three years.
"There are several issues that have cast doubt over Reits, with one of them being rising interest rates," he said. Property businesses are typically highly leveraged, and rising interest rates may lead to a financial burden and stress on margins.
"But the top Asian Reits - such as those in our ETF - are mostly on a fixed-rate debt. Ascendas Reit has 82 per cent of its debt on fixed rate, while CMT has 91 per cent. The average for the whole sector is about 70 per cent.
"Another thing that's going well for these Reits is the high occupancy rate. The units under CMT are 98 per cent occupied, for example. So the underlying Reits of our ETF have very healthy fundamentals," added Mr Yeo.