The Lion Global Investors Ltd-managed fund will be listed on the Singapore exchange on October 30 and its underlying reference asset will be the Morningstar Singapore REIT Yield Focus Index. OCBC’s ETF will be the third REIT-focused security on the local exchange listed in 12 months.
CapitaLand Mall Trust and CapitaLand Commercial Trust each hold a more than 10% weighting in the ETF, which holds 23 REITs in total.
“REITs are a unique asset class that offers investors a sustainable income growth, potential capital growth and portfolio diversification benefits,” Lion Global Investors Ltd chief executive officer Gerard Lee wrote in an e-mail. “Singapore REITs rank the highest within the region in terms of asset quality.”
Typically low-risk income-generating products, REITs are back in vogue as investors ponder how much further the global stock rally can go amid higher valuations, rising geopolitical tensions and increasingly hawkish central banks. Nikko Asset Management Co and Phillip Capital Management Ltd both have funds that track performances of Asia trusts outside of Japan.
Investors seeking a stream of “high dividend income” should consider property trusts as buying physical property tends to be time-intensive and expensive, while developer shares typically expose investors to higher volatility and pay lower dividends, Lee said.
REITs have gained popularity amid a jump in home sales and property developers’ aggressive bids for land, both of which have stoked optimism that the property market is making a comeback.
Home prices rose for the first time in four years, snapping a record decline, according to preliminary data from the Urban Redevelopment Authority yesterday. The office market looks to be at the start of a recovery, as Grade A office rents increased for the first time in 10 quarters in the third quarter.
The FTSE Straits Times Real Estate Investment Trust Index has risen almost 14% this year in local currency, slightly more than the 13% advance in the benchmark stock index, while a gauge of Asian trusts has gained a mere 2% in US dollars.
Singapore property trusts will yield an estimated 6.5% over the next 12 months, second to only Thailand in the region, according to data compiled by Bloomberg. The city-state’s REITs provide yields about three times that of US 10-year Treasuries.
Lion Global Investors is bullish on the commercial property sector as rental demand is expected to grow in the near future “on the back of better-than-expected economic growth in Singapore and the regional economies,” Lee said.
“After a few of years of rental weakness, due to the imbalance in demand and supply dynamics, we are starting to see signs of recovery, most visibly in Singapore’s office, hospitality and industrial sectors,” he said.
ETFs are part of Lion Global’s strategic plan as investors globally move toward more passive investments, Lee said at a media briefing. The firm is “looking at a couple more niche products” but will not look to duplicate what existing players have, he added at the briefing.
If the ETF gets about S$40mn to S$50mn in investments, that would be considered “a great success,” said Jeffrey Lee, chief investment officer at Phillip Capital Management Ltd, which is a sub-manager of the ETF.
