The spotlight in 2023 has been cast on the US-focused REITs, which represent more than 60% of the weights of the FTSE EPRA Nareit Developed Index. In the US, Nareit noted in July that while REITs are well-prepared for a period of higher interest rates, the combination of interest rate-induced change in real estate valuations and concerns about regional and community bank CRE exposure have reduced transactions and created a credit crunch for commercial real estate.
The FTSE EPRA Nareit Developed Index has generated a 2.8% total return in the 2023 year to Sept 7, while the iEdge S-REIT Leaders Index generated a 1.3% total return, bringing their comparative declines in total returns since the end of 2019 to 9.4% and 6.8% respectively.
The iEdge S-REIT Leaders Index provides a performance benchmark for the most capitalised and actively traded REITs in Singapore. The index was relaunched in September 2020, forming a basis market for productisation of the S-REIT market, which included the launch of a futures contract. The Index is composed of 25 of the most actively traded constituents of the broader 35-constituent iEdge S-REIT Index. This means that for the 2023 year thus far, 98% of the trading turnover of the iEdge S-REIT Index was provided by the 25 constituents of the iEdge S-REIT Leaders Index.
iEdge S-REIT Leaders Index heavyweights include CapitaLand Ascendas REIT, Mapletree Logistics Trust, CapitaLand Integrated Commercial Trust, Mapletree Industrial Trust and Mapletree Pan Asia Commercial Trust. At the time of writing, these five REITs represented 50% of the iEdge S-REIT Leaders Index weights. As maintained by the manager of CapitaLand Ascendas REIT, geographical mix and multi-asset portfolio provide diversification of risks across industries, customers and currencies.
While 90-day volatility of the iEdge S-REIT Leaders Index has now normalised to an annualised 11%, it began the year above 20%. Portfolio managers looking to extend their S-REIT investment activity to trading activity can access relevant security and futures products listed for trading on SGX. The latter is of particular relevance for investors looking to hedge some of their S-REIT portfolio in times of market uncertainty.
iEdge S-REIT Leaders Index on the move in August
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Consider some recent examples in August comparing the parallels in performances of large-cap S-REITs, an S-REIT ETF and S-REIT futures.
From the close of Aug 10 to the close of Aug 22, the iEdge S-REIT Leaders Index declined 4.1% in price. Note that dividend distributions saw the index decline 3.9% in total return. Then, for the two sessions spanning Aug 23 and 24, the iEdge S-REIT Leaders Index saw a partial recovery of 1.0%.
For those eight sessions through to Aug 22, the CSOP iEdge S-REIT Leaders Index ETF also declined 3.9%, while a portfolio evenly balanced between CapitaLand Ascendas REIT, Mapletree Logistics Trust, CapitaLand Integrated Commercial Trust, Mapletree Industrial Trust and Mapletree Pan Asia Commercial Trust averaged a 4.0% decline.
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The CSOP iEdge S-REIT Leaders Index ETF then recovered 0.9% over the ensuing two sessions, while a portfolio evenly balanced between the aforementioned five heavyweights averaged a 0.8% gain.
Meanwhile the settlement price of the August 2023 iEdge S-REIT Leaders Index Futures moved from 1,146.9 on Aug 10, to 1,101.6 on Aug 22, and then 1,112.1 on Aug 24. Thus, while iEdge S-REIT Leaders Index declined 4.1% in price for the eight sessions through to Aug 22, the August 2023 iEdge S-REIT Leaders Index Futures declined 4.0%. For the ensuing two sessions to the Aug 24 close, the iEdge S-REIT Leaders Index gained 1.0%, while the August 2023 iEdge S-REIT Leaders Index Futures gained 1.0%.
These examples show comparative past performances that do not take into consideration transaction costs.
iEdge S-REIT Leaders Index Futures
The iEdge S-REIT Leaders Index Futures this year has averaged 1.6% week-to-week swings, moving on average 7 points a day or 20 points a week. This represents $175 on a daily basis or $500 points a week, based on the daily settlement prices. With each 1.0 point worth $25 per contract, this means a price of 1,130 represents a notional value of $28,500.
Note that the iEdge S-REIT Leaders Index Futures market is a leveraged market and categorised as Specified investment Products. One long or short position at a price of 1,130, for example, provides equivalent exposure to a $28,500 position in the underlying index, with a current initial margin requirement of $1,210. A position of 10 lots would provide equivalent exposure of $285,000 on a $12,100 initial margin requirement. Negotiated large trades (NLTs) can also be executed with a minimum of 10 lots.
The iEdge S-REIT Leaders Index Futures market is also supported by market makers who provide competitive bid and offer quotations on screen during the Singapore market hours. This liquidity provision is essential given that the market is in a nascent stage of development compared to more established products like the SGX MSCI Singapore Index Futures. While investors can choose to trade the futures on screen, those looking to trade sizeable positions can contact their brokers to facilitate competitive pricing for NLTs.
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Because full funds are not required to maintain a long or short position in the iEdge S-REIT Leaders Index Futures, the balance of those funds can be earning fixed income returns. The iEdge S-REIT Leaders Index Futures are traded on a cycle of the two nearest serial months and 12 quarterly months on March, June, September and December cycle. The contract also maintains a cash settlement expiry with the expiry date the second-last Singapore business day of the month.
The CSOP iEdge S-REIT Leaders Index ETF
The CSOP iEdge S-REIT Leaders Index ETF accounted for one-fifth of the combined trading turnover of the five REIT-focused ETFs listed for trading in Singapore in July and August. These ETFs comprise the NikkoAM-StraitsTrading Asia ex Japan REIT ETF, Lion-Phillip S-REIT ETF, UOB APAC Green REIT ETF and the Phillip APAC Dividend Leaders REIT ETF.
The combined assets under management of the five REIT-focused ETFs is $858 million as of Aug 31, with combined inflows of $60 million over the first eight months of the year.
As maintained by Beansprout, Singapore REIT ETFs offer instant diversification across various industries and geographies compared to owning single REITs, which means that the risks are spread out compared to owning single REITs. The investment advisory platform adds that Singapore REIT ETFs are intended to offer a low-cost way to own this basket of REITs, while offering the convenience of transacting once via the ETF.
S-REIT investors can also opt for a regular savings plan like the DBS Invest-Saver. The DBS Invest-Saver RSP enables investors to purchase units in the NikkoAM-StraitsTrading Asia ex-Japan REIT ETF and/or the CSOP iEdge S-REIT Leader ETF for as little as $100 each month. The iEdge S-REIT Leaders Index is also tracked by digital investment platform Syfe to deliver its Satellite REIT+ portfolio.
