Two rival fund managers have entered into an unlikely partnership to cash in on the growing trend by investors to back market indices rather than bet on professional stock pickers.
Lion Global Investors, which is part of the OCBC Group, has joined forces with Phillip Capital Management to create the first exchange-traded fund (ETF) to be comprised entirely of Singapore-listed real estate investment trusts (Reits).
The Lion-Phillip S-Reit ETF, which will be listed on the Singapore Exchange at the end of the month, is a full replication of the 23 S-Reits in the Morningstar Singapore Reit Yield Focus Index. Morningstar's index has a 12-month trailing yield of 5.75 per cent.
Lion Global Investors chief executive Gerard Lee told a briefing on Monday that the partnership was "atypical", but the size of the ETF, or the amount of assets under management (AUM) their combined strength could pull in, was a key consideration.
"If each of us were to launch our own S-Reit ETF, we may get $25 million each, and then it doesn't grow. Rather than face the prospect of having two S-Reit ETFs that are sub-scale, coming together we think that our probability of success will be a lot higher," he added.
Mr Jeffrey Lee, managing director and chief investment officer at Phillip Capital Management, said the ETF targets assets under management of between $40 million and $50 million. He added: "This will definitely appeal to global asset allocators in the US or Japan. They need a higher income-producing asset such as Singapore Reits. In one single stroke, they get exposure to 23 quality Singapore Reits."
HIGHER CHANCE OF SUCCESS
If each of us were to launch our own S-Reit ETF, we may get $25 million each, and then it doesn't grow. Rather than face the prospect of having two S-Reit ETFs that are sub-scale, coming together we think that our probability of success will be a lot higher.
'' LION GLOBAL INVESTORS CEO GERARD LEE, on teaming up with Phillip Capital Management.
Lion Global Investors is the fund manager and owner of the Lion-Phillip S-Reit ETF, its first ETF. Phillip Capital Management is the sub-fund manager in charge of daily dealing and the creation of new units.
The initial offer period started on Monday and closes at 11am on Oct 20. The units are priced at $1.
Instead of taking the "plain vanilla" route and using market cap to determine weightings, the Morningstar index uses three factors - quality, financial health and dividend yield - to score each Reit. Portfolio weights are based on the score adjusted for liquidity.
Rebalancing is done twice a year, and the ETF has a management fee of 0.5 per cent. The total expense ratio for first two years will be capped at 0.6 per cent.
Investors will get a semi-annual distribution in February and August.
Mr Gerard Lee noted that passive investing through ETFs has gained a lot more traction in the last 15 years, and the trend is "unstoppable" - most active managers who are still in business would have some passive component in their universe of products.
But competition is stiff, and the global ETF business is an "oligopoly", dominated by BlackRock and Vanguard, and State Street to a lesser extent, he said.
He noted: "Only in niche areas (like S-Reits) would they not be interested. But we know that Singapore has a very active and respected Reit market."
As Singapore's Reit market matures, other ETFs with a regional theme have sprung up to track the sector in the past year.
The Phillip SGX Apac Dividend Leaders Reit ETF was listed in October last year and the NikkoAM-StraitsTrading Asia ex Japan Reit ETF was listed in March.