Central banks in some countries have begun cutting interest rates as global growth slows, providing support to businesses in the form of lower borrowing costs.
While this is good news for businesses, lower interest rates may eventually reduce the returns to holders of government bonds and those with money in fixed deposits.
If you are seeking steady and predictable income, and relatively higher returns without taking on too much risk, you might want to consider investing part of your savings in real estate investment trusts (REITs). REITs in the Asia region excluding Japan have in the last three years offered higher returns compared to most equities, while their prices generally do not fluctuate as sharply as regional stocks. (Refer to the chart below)
Asian REITs vs Other Asset Classes
A closer look at REITs in the region
REITs, as the full name suggests, are investment vehicles which pay dividends from the rents collected from properties in their portfolios. As these rental payments are contractual, income from REITs tend to be more stable relative to the dividends paid by blue chip companies whose payouts can vary. Unlike bonds which generally pay a fixed coupon each year, REITs that have good quality assets and are well managed can increase their dividends over time.
Besides Singapore, which has some 40 listed REITs and property-related business trusts, REITs can also be found in regional economies such as Hong Kong, Australia, Malaysia, China and India.
For those without the time or inclination, one alternative to investing directly in REITs is to rely on professional fund managers with the skills and resources to analyse the REIT sector as well as minimise risk through diversification.
At Manulife Asset Management, which manages the Manulife Asia Pacific REIT Fund*, the investment team selects REITs by considering a large number of factors including demand and supply dynamics, the quality of management and sponsors, asset enhancement initiatives, capital management and valuations.
Quality over yield
The Manulife Asia Pacific REIT Fund does not always invest in the best yielding REIT as the REIT may carry an unusually high level of risk relative to the potential return.
Manulife Asset Management currently favours “Grade A”, or top-quality, office properties in the Central Business Districts (CBD) in Singapore and Sydney due to strong demand as well as the lack of upcoming supply in the coming two to three years.
In Hong Kong, the preference is for office properties outside the CBD as they stand to benefit most from the “decentralisation” trend. Manulife Asset Management also prefers retail properties in Hong Kong due to the growing number of mainland Chinese visitors to the city. The growth in the number of visitors will likely continue in the coming years — thanks to new transportation options such as the recently opened bridge connecting Hong Kong, Macau and Zhuhai and the extension of China’s high speed rail network to West Kowloon.
One unique feature of the Fund is that up to 30 per cent of the assets can be channelled to non-REIT real estate-related securities for potential capital gain.
Right now, Manulife Asset Management sees upside potential in property developers in the Asia-Pacific excluding Japan region as their shares are trading at fairly large discounts to revalued net asset value. Share prices of property developers tend to be volatile, but do provide opportunities to fund managers who are vigilant and have deep knowledge of the property cycles.
Visit https://asia.manulifeam.com/apreits if you are interested to find out more about the Manulife Asia Pacific REIT Fund.
*The full name of the Fund is Manulife Global Fund – Asia Pacific REIT Fund
IMPORTANT INFORMATION: The source for all opinions and information shown in this article is Manulife Asset Management, unless otherwise stated. Manulife Global Fund is an open-ended investment company registered in the Grand Duchy of Luxembourg. The information provided herein does not constitute financial advice, an offer or recommendation with respect to the Manulife Global Fund – Asia Pacific REIT Fund (the “Fund”). Investments in the Fund are not deposits in, guaranteed or insured by the Manager and involve risks. Distributions are not guaranteed. The value of units in the Fund and any income accruing to them may fall or rise. Investors should read the Singapore prospectus, and seek advice from a financial adviser before deciding whether to purchase units in the Fund. A copy of the Singapore prospectus and the product highlights sheet can be obtained from Manulife Asset Management (Singapore) Pte. Ltd (Registration no.: 200709952G) or its distributors. In the event an investor chooses not to seek advice from a financial adviser, he should consider whether the Fund is suitable for him. Past performance of the Fund is not necessarily indicative of the future performance of the Fund. Opinions, forecasts and estimates on the economy, financial markets or economic trends of the markets mentioned are not necessary indicative of the future or likely performance of the Fund. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.