• With an initial AUM of ~S$120 million, the CSOP iEdge S-REIT Leaders Index ETF takes the combined AUM of the four SGX-listed ETFs tracking the local and regional REIT Sector to close to S$700 million. The ETF commenced trading today with an SGD counter (SRT) and USD counter (SRU).
   
• The S-REIT Leaders Index is distinguished by its liquidity focus. In addition to liquidity filtering, the Index utilises a liquidity adjustment with constituents categorised into liquidity quartiles and assigned adjustment factors to their respective free float market capitalisation at semi-annual rebalances.
   
• This has seen the iEdge S-REIT Leaders Index marginally outpace the iEdge S-REIT Index over the past five years, with the iEdge S-REIT Leaders Index generating a net total return of 63.2%, compared to 59.8% for the iEdge S-REIT Index, while the FTSE EPRA/NAREIT Global REITs Index generated a 47.4% total return in SGD terms.
   
• The iEdge S-REIT Leaders Index is also tradable through futures contracts, providing a platform for portfolio strategies such as hedging, and while the impact of dividends is taken into account into the theoretical pricing of the futures contract, dividend expectations can change, which provides a basis for yield arbitrage opportunities.

The CSOP iEdge S-REIT Leaders Index ETF has listed today on SGX. With initial Assets Under Management (‘AUM’) of close to S$120 million, the REIT takes the combined AUM of the now four SGX-listed REIT ETFs to close to S$700 million. This also brings the total AUM of all 32 ETFs listed on SGX to close to S$12 billion.

The iEdge S-REIT Leaders Index is comprised of 28 of the most liquid REITs, Stapled Trusts and Business Trusts that make up the S-REIT Sector. It is the liquidity filtering and liquidity adjustments at each semi-annual rebalance that distinguishes this Index from other S-REIT Indices. Like the broader iEdge S-REIT Index, the Index comprises SGX-listed stocks that are classified as REITs by the Factset Revere Business Industry Classification System.

However, to be a constituent of the iEdge S-REIT Leaders Index, it must firstly maintain a free float market capitalisation which is at least 20% of its total market capitalisation, and the six-month median free float market capitalisation must be at least S$500 million. The most recent semi-annual iEdge S-REIT Leaders Index rebalance saw Far East Hospitality Trust join on the grounds of its free float market capitalisation. While the Stapled Trust had gained 1.6% in the 2021 year to 16 Nov, the inclusion coincided with a filing on 25 June detailing that Oxley Hill Properties Pte Ltd had disposed of its 8.45% direct interest in the stapled trust via an off market transaction.

The two key liquidity provisions of the iEdge S-REIT Leaders Index are as follows:

• The Index adopts a liquidity filter which at the semi-annual rebalancing mandates constituents are selected that trade at least average US$500,000 in daily turnover and a 0.10% daily trading velocity of the free float market capitalisation. To maintain an existing place in the Index, constituents must maintain US$400,000 in daily turnover and a 0.08% daily trading velocity of the free float market capitalisation.
• The Index also adopts a liquidity adjustment, applied to the constituents at the semi-annual rebalancing. Based on the daily traded velocity as measured in the liquidity screening, constituents are categorised into liquidity quartiles and assigned adjustment factors on their respective free float market capitalisation:

• The constituents in the highest quartile of daily trading velocity have a 1.0 adjustment factor, versus the next highest quartile maintaining a 0.75 adjustment factor.
• Likewise the constituents in the lowest quartile of daily trading velocity have a 0.25 adjustment factor, versus the next lowest quartile maintaining a 0.50 adjustment factor.

This effectively weights the Index to the most traded trusts of the S-REIT Sector at six month intervals. This helps to ensure the high relevance of the Index to recent market participation, which can reflect sub-themes of the S-REIT market. For instance for the semi-annual review effective 22 March, Fraser Centrepoint Trust increased its weightage in the Index, following an increase in average daily trading velocity. This coincided with Fraser Centrepoint Trust’s acquisition of the remaining stake of AsiaRetail Fund Limited and equity fund raising to raise gross proceeds of approximately S$1.33 billion, completed on 27 October 2020. Finally, the index weightage of each constituent is capped at a maximum of 10% at the March and September rebalances, which means both CapitaLand Integrated Trust and Ascendas REIT would currently maintain lower index weights in the iEdge S-REIT Leaders Index compared to the FTSE ST REIT Index.

The current constituents of the iEdge S-REIT Leaders Index, ranked by the highest total returns in the 2021 year to 16 November are tabled below.

 Source: SGX, Refinitiv, Bloomberg (Data as of 16 Nov 2021). * Note Dividend Yield based on 31 Oct prices, ** Business Trust, *** Stapled Trust.

While the CSOP iEdge S-REIT Leaders Index ETF is comprised of SGX-listed REITs, Stapled and Property Trusts, as many as 16 of the trusts of the Singapore S-REIT Sector exclusively invest in property assets outside of Singapore, with 19 of the trusts investing in properties in both Singapore and outside of Singapore, and the remaining five REITs investing purely in Singapore. This includes as many as 10 trusts with properties in China, seven REITs with properties in Japan and six REITS with properties in Malaysia. The trusts are also highly diversified across property types with a balance across Retail, Industrial, Office and hospitality properties, in addition to multiple REITs investing in healthcare-related properties and specialised REITs such as Data Centres. The 2021 year has also seen close to 20 S-REITs announce or complete property acquisitions totaling close to S$9 billion in deal value. For more details click here.  

Portfolio Management Opportunities with the iEdge S-REIT Leaders Index Futures

The iEdge S-REIT Leaders Index is also tradable through futures contracts, providing a platform for portfolio strategies such as hedging or yield arbitrage for professional investors. The contract size of the iEdge S-REIT Leaders Futures Contact (‘SRT’) is S$25 x the Index, which is currently 1,388.1, inferring a current contract value of S$34,702.50. The futures contract trades the two nearest serial months and March, June, September and December months on a three year cycle. The last trade date of the contract is the second last Singapore business day of the month with the Final Settlement Price, the official closing value of the iEdge S-REIT Leaders Index rounded to two decimal places. The current initial margin of one SRT futures contract is S$1,210, representing approximately 3.5% of the current contract value.

As an educative example, using the above specifications, had an investor sold one November 2021 SRT (“SRTX1”) at the settlement price on 5 Nov at 1392.3 and bought back the SRTX1 at the settlement price of 1380.0 on 10 Nov, the investor would have made a return of 12.3 points, or 41 ticks equivalent to S$307.5. This is while the underlying iEdge S-REIT Leaders Index declined 0.9% from 1394.435 on 5 Nov, to 1382.317 on 10 Nov. Hence the 0.9% decline in a long exposure to the iEdge S-REIT Leaders Index could have been hedged with a 0.9% gain in a short futures contract over the three sessions.

The SRT is based on the performance of the iEdge S-REIT Leaders Index. As the SRT does not pay dividends, it will be theoretically priced at a lower price than an ETF that tracks the product that does distribute dividends. At the same time the futures contract price would be higher than the associated ETF on the interest rate received on funds that are saved by the leverage associated with a futures contract. However, with interest rates near record-lows, the impact of the loss of dividends outweighs the interest on funds saved, meaning SRT would theoretically be expected to currently trade at a discount to the Index. However, while the impact of dividends is taken into account into the theoretical pricing of SRT, dividend expectations can change, which provides a basis for yield arbitrage opportunities. The CSOP iEdge S-REIT Leaders Index ETF intends to distribute dividends on a semi-annual basis.

Note that in Singapore, individual traders need to be Specified Investment Products qualified to trade in are financial products with structures and features that may be more complex than others and require more knowledge to understand. Futures markets are also are also leveraged products and are hence for investors who are willing to accept the risk of substantial losses exceeding the principal investment amount, possibly within a very short timeframe.