THE FTSE EPRA Nareit Developed Index is designed to track the performance of listed real estate companies and real estate investment trusts (Reits) worldwide.

Recognised as the global Reit benchmark, the Index comprises 370 constituents, 300 of which represent the global Reit sector. Placement in this index is highly coveted by global Reits due to the span of passive institutional investors that track the Index.

From the end of 2019 through to Aug 18, 2023, the index has declined 24 per cent in price, with reinvested dividend distributions reducing the decline in total return to 13 per cent, in US dollar (USD) terms.

As expected, with the Singapore dollar (SGD) holding its own to the USD, the SGD-equivalent decline in price and total return of the Index was comparable, at 23 per cent and 12 per cent respectively. The trailing 12-month yield of the FTSE EPRA Nareit Developed Index stood at 4.2 per cent as at the end of July.

At the same time, the iEdge S-Reit Index, comprising 35 constituents, maintains a higher 6 per cent yield. From the end of 2019 through to Aug 18, 2023, the iEdge S-Reit Index has declined 25 per cent in price, with reinvested dividend distributions reducing the decline in total return to 8 per cent, in SGD terms.

The total returns of the local and global Reit benchmarks were comparable over the 189 weeks since the end of 2019, with some directional correlation.

However, with the US economy’s earlier emergence from Covid, the iEdge S-Reit Index underperformed the FTSE EPRA Nareit Developed Index by 24 percentage points in 2021, while also posting 13 percentage points less in declines in 2022.

This year, there has been more similarity in returns through to Aug 18, with both indices posting flat total returns.

The 10 largest weights of the iEdge S-Reit Index make up close to 70 per cent of the index weights. The trio of CapitaLand Integrated Commercial Trust, CapitaLand Ascendas Reit and Mapletree Logistics Trust together make up 31 per cent of the index weights.

Importantly, the index does not just serve purpose as a sector bellwether. It has subset Indices that are both investable and tradable. This can assist investors as the S-Reit platform continues to evolve amid a backdrop of higher interest rates.

Index productisation can provide a means for investors to efficiently aggregate S-Reit exposure and streamline specific S-Reit concentration risks to Index weightings. The productisation may also suit investors looking for more short-term tactical positioning amid fluid economic outlooks, bouts of uncertainty and broader market risks.

SGX now lists five Reit-focused ETFs for trading. The five ETFs saw trading turnover advance 21 per cent in July versus June.

The S-Reit-focused, CSOP iEdge S-Reit Leaders Index ETF led the increase in retail and institutional trading and accounted for more than a third of the combined turnover of the five Reit-focused ETFs in July.

This followed on from the combined assets under management of the five Reit-focused ETFs totalling S$876 million on Jun 30, with combined net inflows of S$108 million over the first six months of the year. The CSOP iEdge S-Reit Leaders Index ETF, Lion-Phillip S-Reit ETF, and Nikko AM StraitsTrading Asia ex-Japan Reit ETF also maintained dividend yields higher than 5 per cent as at Jul 30.

According to DBS Bank Financial Planning Literacy Specialist Navin Sregantan, S-Reit investors can also opt for a Regular Savings Plan (RSP) like the DBS Invest-Saver. The DBS Invest-Saver RSP enables investors to purchase units in the Nikko AM-StraitsTrading Asia ex-Japan Reit ETF and/or the CSOP iEdge S-Reit Leader ETF for as little as S$100 each month.

The iEdge S-Reit Leaders Index is also tracked by all-in-one digital investment platform, SYFE, to deliver their Satellite Reit+ portfolio. Compared to the iEdge S-Reit Index, the iEdge S-Reit Leaders Index is a narrower gauge that measures the performance of the most liquid Reits in Singapore, with a current crop of 25 constituents.

Sophisticated SIP-qualified investors can also use the iEdge S-Reit Leaders Index Futures, in addition to futures based on the FTSE EPRA Nareit Asia Ex Japan Reits Index to take leveraged long positions or leveraged short positions.

The latter short positions serve portfolio managers looking to hedge their S-Reit exposure in anticipation of declines. Assuming a futures price of 1,120, one August iEdge S-Reit Leaders Index Futures contract maintains a notional value of S$28,000.

With an initial margin requirement currently in the vicinity of S$1,210 per contract, each minimum 0.3 move is equivalent to S$7.50 per contract. 

REIT Watch is a weekly column on The Business Times, read the original version.