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NikkoAM-StraitsTrading ex-Japan REIT ETF or "AK REIT ETF"?

Friday, March 10, 2017


Ron and Dave dissect some of today’s most important REIT ETFs.

I am feeling lazy, as always, and didn't want to write about the new REIT ETF but I received so many messages that I decided, maybe, I should say something.

I didn't want to blog about the ETF because it is easy enough to understand. It will hold a basket of REITs, 23 to be exact, from countries such as Singapore, Hong Kong and Malaysia. It will distribute income quarterly and the distribution yield is estimated to be 5% at IPO.

The ETF is probably a good choice for people who want to have exposure to REITs but are too lazy to be bothered with researching individual REITs. OK, I understand the lazy bit but they will have to take the good with the bad in the ETF.

For people who know more about REITs, they are probably better off investing in individual REITs. I don't know about you but a 5% distribution yield from a REIT product is unattractive to me.

Why?

Well, remember that REITs are leveraged instruments. Leverage magnifies gains. So, the 5% yield is after magnification. Taking into consideration that they distribute 90% to 100% of their cash flow (i.e. they have zero retained earnings), a 5% yield doesn't seem attractive.

To me, the only good thing about the ETF is that having a portfolio of 23 REITs reduces concentration risk. 


However, if diversification is what we want, we can try to form our own REIT ETF.

Taking from my portfolio, for example, we could put together an "AK REIT ETF":

1. AIMS AMP Cap. Ind. REIT


2. FIRST REIT

3. Frasers Log and Ind. Trust

4. Ascendas Hospitality Trust

5. IREIT Global

6. Croesus Retail Trust

7. Religare Health Trust

OK, I am being a bit liberal here since not all are REITs but you get the idea.

Assuming equal weight given to the 7 components in "AK REIT ETF", we are looking at a distribution yield of more than 7%. 

"AK REIT ETF" would generate at least 40% more in income than "NikkoAM-Straits Trading ex-Japan REIT ETF".

Oh, did you notice that my REIT is also less of a mouthful? Yes, I know. Bad AK! Bad AK!

Of course, we would also have control of what we want in and what we want out. We could also change the weight of each component.

If we are investing in REITs for income, if we want some diversification, then, perhaps, NikkoAM-StraitsTrading ex-Japan REIT ETF is a decent option. 

Otherwise, the ETF really doesn't seem attractive to me at all.
-------------------
UPDATE (16 March 2017):
What happens if one of the REITs (or a few) in the ETF had a rights issue?
A reader found out from the horse's mouth:


9 comments:

six dollars said...

Perhaps this ETF is useful for those using SRS and avoid the right issue situation?

Refer to http://singaporeanstocksinvestor.blogspot.com/2015/07/srs-account-cpf-account-and-rights.html

AK71 said...

Hi six dollars,

Actually, I was just wondering about the same thing. What happens if one of the REITs (or a few) in the ETF had a rights issue? Since I am not interested in the ETF, this question is only of academic interest to me, of course.

AK71 said...

From my FB wall:

Matthew Seah:
There is no mandate to distribute 90-100% for a REIT ETF.
There are taxes involved in REIT ETF.
Don't think it's that good.

Kevin said...

Hi AK,

PhillipCapital sharing its latest views on SG Reits as well as US and China market overall sentiments. Check it out. :)

https://youtu.be/2PvoyuyYLX8

AK71 said...

Hi Kevin,

Thanks for sharing this. :)

Gary said...

Hello, I am back! =D

Great article! =))

AK71 said...

Hi Gary,

Welcome back. :)

Kevin said...

Hi AK,

Do you think there will be volatility in SG Reits next week when the possibility of an announcement of US Fed interest rate hike is over 90%?

I personally feel there will be low or no volatility as the current prices are more or less priced in, unless auntie Yellen raise it to more than 25 bps. ;)

AK71 said...

Hi Kevin,

I always say we cannot predict. We can only prepare. ;)

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