New Reit ETF attracts strong demand

Promise of stable return from top Reit leaders in Asia-Pacific buoys exchange-traded fund

Singapore Exchange (SGX) logo and sign.
Singapore Exchange (SGX) logo and sign.ST PHOTO: JAMIE KOH

Investors have enthusiastically jumped on board a new exchange traded fund (ETF) on the local bourse tracking a regional real estate investment trust (Reit) index.

The SGX Apac Dividend Leaders Reit ETF had received more than $30 million in orders as of yesterday, data by the fund creator Phillip Capital Management showed.

The initial offer period for the ETF, unveiled late last month, runs until 10am tomorrow. It starts trading on the mainboard on Oct 20.

An ETF is a listed and tradeable security product designed to track a stock index or prices of a commodity. Phillip's latest addition to the market will trace the performance of a new SGX index comprising 30 highest total dividend-paying Reits in Asia-Pacific outside Japan.

The product is proving popular because it will give investors a sustainable return generated from Reits with high-quality assets in healthy economies and powerful sponsors, Phillip Capital Management chief investment officer Jeffrey Lee said.

It is expected to yield around 5 per cent in dividends, or 4.5 per cent excluding the 0.5 per cent charged for management fee.

"This is a stable and growing return. Our calculation revealed that over the past five years, the index has generated over 10 per cent compounded returns annually in both (United States) dollars and Singapore dollars," Mr Lee said.

The indicative price range for the ETF is 88 US cents to US$1.10 in the initial offer; it can also be bought in the secondary currency of Singdollar, but prices are subjected to exchange rate fluctuations.

"It will also offer a diversified return that's generated from the top Reit leaders in the Asia-Pacific. 59.05 per cent of the index's constituent Reits are in Australia, among the fastest growing OECD countries and recovering well from the commodity slowdown," he continued.

Another 29.62 per cent is in Singapore, with the remaining 11.33 per cent in Hong Kong.

"But, really, the most important thing to Reits is their parentage, and we cover the best of them. Link Reit is spun off from the Hong Kong Housing Authority, while Scentre Group and Westfield Corp are backed by... the Lowy family."

Link Reit, Scentre Group and Westfield Corp are the three biggest constituents of the index, jointly developed by SGX with Phillip Capital Management for the ETF.

Ascendas Reit and CapitaLand Mall Trust are also among the index's top 10 constituents.

Mr Jack Wang, partner of Lexico Advisory, saw the ETF as a viable product for retail investors.

"If they can deliver that 5 per cent dividend, it certainly looks attractive given the low yield environment. But it's a passively managed fund, so I think there's scope for the management fee to be lower."

Phillip Capital Management is open to lowering the fee down the road, Mr Lee said.

Reyl Singapore senior portfolio manager Daryl Liew said: "Currency risks are another thing to note, and with the high concentration of Australian assets, you need to consider where the A$ goes when the US rates start to go up. But as a product and investment solution, it's good to have, at a time when Asia's Reit space is starting to grow. When Reits emerge in more regional countries, this segment - and the product - will look more interesting."

A version of this article appeared in the print edition of The Straits Times on October 12, 2016, with the headline 'New Reit ETF attracts strong demand'. Print Edition | Subscribe