Why Singapore REIT Investors Should Consider Investing Via The iEdge S-REIT Leaders Index

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Indexes have been around in the financial markets for as far as we can remember. Indexes, also known as indices, refer to a basket of securities that act as a proxy to how a particular market is performing. For example, the Straits Times Index (STI) is Singapore’s benchmark index and is commonly referenced as an indicator to measure how well the Singapore stock market is doing.

A benchmark index is beneficial as it not only informs us about how well the market is performing but also helps us to compare our portfolio return against the market return. For example, if our Singapore portfolio earned a return of 5% for the year while the STI generated a return of 20%, then we shouldn’t be overly excited about our portfolio performance. Conversely, if our portfolio remains flat for the year while the STI declined by 10%, we shouldn’t be too disappointed.

Indexes can be constructed to act as a proxy to measure performance for specific sectors. For example, if we want to know how well Singapore REITs (S-REIT) are performing, we can look at the iEdge S-REIT Leaders Index, one of the most popular indices of the Singapore stock market. Traded in Singapore Dollar (SGD), this index is designed to measure the performance of the largest and most liquid REITs in Singapore. Components that form this index include well-known names such as Ascendas REIT (SGX: A17U), Mapletree Logistics (SGX: M44U) and CapitaLand Integrated Commercial Trust (SGX: C38U).

As of 31 March 2021, there are 26 constituents that form the index with a total market capitalisation of about $105 billion. A 12-month dividend yield for the REIT is at about 4.6%.

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I would like to think of indexes as set menus at a restaurant. At most restaurants, the chefs would usually create set menus that comprise of some of the best-selling signature dishes that the restaurant offers.

While we have the option of ordering individual dishes from the a la carte menu, set menus allow us – like new customers – to sample a variety of dishes in smaller quantities at the restaurant, instead of having to choose only 1 or 2 individual dishes from a menu we are not familiar with. In this case, we can have a much more all-rounded experience.

The same logic applies to investing via indexes. Rather than picking just one or two REITs to invest in, we can invest in the entire index with the same amount of capital instead. For example, the iEdge S-REIT Leaders Index is constructed to reflect the performance of the largest REITs in Singapore. By investing in this index, you get instant diversification across all the various S-REITs within the index.

We Can’t Just Invest Directly In Indexes

While benchmark indexes such as the STI and the iEdge S-REIT Leaders are helpful if we want to review the performance of Singapore blue-chip stocks and S-REITs, we can’t directly invest in them.

This is why index-based ETFs can help investors get exposure to an index. For example, if we want to invest in the STI, we can invest via the SPDR STI ETF or the Nikko AM STI ETF, both of which are listed on the SGX.

Investing In The iEdge S-REIT Leaders Index Via Syfe REIT+

At the moment, there are no index-based ETFs tracking the iEdge S-REIT Leaders Index. However, these are not the only options for investing in an index. For example, investors who wish to invest in the iEdge S-REIT Leaders Index can do so via Syfe REIT+. Launched in partnership with the Singapore Exchange (SGX), it is a robo-advisory portfolio offered by Syfe that closely replicates the performance of the iEdge S-REIT Leaders Index.

Unlike most index-based ETFs, Syfe REIT+ does not replicate the index entirely. Instead, the portfolio makes a selection of 20 high-quality REITs from the iEdge S-REIT Leaders Index to invest in for the portfolio. More details of how Syfe REIT+ tracks the index can be found here.

Syfe REIT+ has exposure across various property sectors in Singapore, including: retail, industrial, data centre, office, hospitality, and healthcare. It has returned an average of 8.7% per year over the last eight years, and delivered 4.5% dividend yield in 2020. In 2021, the dividend yield is estimated to increase to 5.1%.

To be clear, the Syfe REIT+ is not an ETF. If you invest in the Syfe REIT+, you invest directly in each of the 20 S-REITs. You own the actual units of REITs, as opposed to owning the ETF that invests in this REIT.

You can watch more about how Syfe REIT+ works in the video below.

In addition, the portfolio also has an option for investors to choose whether they wish to allocate some of their investments into fixed income assets to provide a component of risk management for the portfolio. With the risk management support, Syfe will build a REIT portfolio that takes on more risk via a higher percentage in REITs when markets are optimistic, and reduces risk by lowering the holdings in REITs and increasing their holdings in fixed income assets when markets are volatile.

For their fixed income exposure, Syfe uses the Nikko AM ABF Singapore Bond Index Fund. This allows it to gain diversification into an ETF, which invests in high-quality Singapore government bonds.

Read our review on the Syfe REIT+ when it was first launched in March 2020 to find out more.

Automatically Reinvest Your Dividends In The Portfolio                  

An often overlooked aspect of long-term investing is the importance of reinvesting our dividends to compound our returns over time. Sometimes, investors who invest in high-yield dividend stocks like REITs may miss out on long-term portfolio growth because they neglect to invest their dividends. For example, REITs dividends credited to their savings accounts on a quarterly basis may be spent before an investor even realised that they should be reinvesting the money.

With Syfe REIT+, we have the option of automatically reinvesting our dividends if we want to grow our portfolio. According to Syfe’s calculations, dividend reinvestment can add an additional 0.5% in returns each year.

Alternatively, income-seeking investors (e.g. retirees) can also choose to receive their dividends in the form of a quarterly payout. This is available to Syfe Black tier and above clients.

Read Also: Investing With Syfe: 6 Things You Need To Know About This Singapore’s Robo-Advisor

Whether we invest through the Syfe REIT+ or a REIT ETF, do note that there will be fees incurred. For Syfe’s portfolio, fees range from 0.35% to 0.65% p.a. If you invest through a REIT ETF, there will be a management fee that ranges from 0.6% to over 1.0%.

On top of management fees for ETFs or robo-advisory portfolios, all REITs also have a management fee which is typically about 0.25% to 0.50% p.a.

Syfe REIT+ does not charge brokerage fees. Local brokerages may charge between $10 – $25 in commissions each time you buy or sell a REIT. As such, Syfe REIT+ is more the sensible option if you want to implement a dollar cost averaging strategy with REITs. With no minimum investment amount nor a lock-in period, anyone can use it to gain diversified exposure to S-REITs.

Ultimately, Syfe REIT+ is a straightforward way to get started on our S-REITs investment journey as it utilises the iEdge S-REIT Leaders to guide how its portfolio will be constructed. Moreover, Syfe will do all the rebalancing that is required for the portfolio when it’s needed.