The Best of Both Worlds: REIT + ETF = REIT ETF April 23, 2018

The Best of Both Worlds: REIT + ETF = REIT ETF

What are REITs?

Real Estates Investment Trusts (REITs) are funds that invest in a portfolio of income-generating real estate assets such as shopping malls, offices, industrial estates, hotels, etc.[1] REITs can be classified according to the type of real estates they invest in and the geographic locations they are in:

  1. Retails REITs (eg. CapitaMall Trust, Frasers Centrepoint Trust)
  2. Industrial REITs (eg. Ascendas REIT, Mapletree Industrial Trust)
  3. Office REITs (eg. Frasers Commercial Trust, Keppel REIT)
  4. Healthcare REITs (eg. Parkway Life REIT , First REIT)
  5. Hotel & Resort REITs (eg. Frasers Hospitality Trust, Far East Hospitality Trust)
  6. Residential REITs (eg. Ascott Residence Trust)

(Types of REITs and REIT Fund Managers are not exhaustive)

Many investors might think of buying a physical property (private apartments, shop houses, etc.) when it comes to investing in property. What they might not know is that REITs allow investors to have vested interests in the real estate sector without having to make significant commitment to purchase the property. Majority of the investors may not have the capital required to invest in properties and REITs offer them a cost-effective way to gain exposure to physical property and diversify their investment portfolio.

REITs Investments Vs Real Estate Investments

REITs Real Estate
Capital Outlay Flexible, as low as a few hundred dollars Capital Intensive and usually requires leveraging
Process Simple, transacted like shares on stock exchanges Long process from viewing to completion of paperwork
Yield Yes, from dividend income Yes, from rental income
Capital appreciation/depreciation Capital gain / loss depending on demand & supply on stock exchanges and performance of REITs Asset appreciation / depreciation depending on supply & demand for properties in the open market
Barriers to Entry/Exit Can be transacted readily on stock exchanges A need to source for buyers who are willing to match the asking price for the property
Price discovery Prices quoted on exchanges Need to source for valuations and professional valuators

Characteristics of REITs

The underlying assets of REITs are professionally managed and income generated from the assets (primarily rental income) are distributed to investors at regular intervals. Thus, REITs are ideal for investors looking for constant dividend pay-out throughout the year (dividend frequency and yield depends on policy of respective REITs).

REITs are transacted on stock exchanges around the world. However, REITs, being similar to equities, are especially susceptible to market risks and non-market risks. For example, Retail REITs’ performance are vulnerable to the economic climate and are positively correlated to the consumers’ spending power (Market Risks). Physical retail malls (underlying assets of Retail REITs) are also facing tough competitions from online retail outlets, which will in turn affect the Retail REITs’ performance (Non-Market Risks).

In addition to the wide variety of different REIT sectors, REITs may also be located in different geographic regions and are vulnerable to the particular political development and fiscal policy of the region. For instance, a fall in interest rate may encourage businesses to borrow more and invest into retail or office space, which will in turn drive up the performance of the respective REITs. Conversely, an increase in interest rate will increase the cost of borrowing and ultimately affect the gearing ratio and performance of REITs.

Political climate, consumers’ trends, fiscal and government policies are constantly unfolding and changing throughout the world. This framework meant that REITs are notably exposed to the changes in their external and internal environment.

5 Advantages of REITs

  1. Wide variety of REITs available in different geographic locations
  2. Cost-effective method to gain exposure to real estate industry
  3. A unique asset class for investors to diversify their investment portfolio
  4. Stable dividend pay-out and decent dividend yield
  5. Suitable for investors looking to supplement their passive income

Click here to view “5 Things to Look Out for When Investing in REITs”

A Unique Hybrid: REIT Exchange-Traded Funds (ETFs)

REIT ETFs are open-ended funds listed and traded on stock exchanges. However, unlike traditional REITs, REIT ETFs contain a basket of REITs as its underlying assets and give REIT ETF holders exposure to a basket of REITs rather than a single REIT.

The investment objective of REIT ETFs is to replicate the benchmark index that it is tracking and it adopts a passive indexing strategy. This strategy provides investors with convenience as they do not have to track the performance of each individual REIT.

Dividends garnered from the underlying assets of the REIT ETFs will be distributed to the ETF holders, with the frequency and yield decided by the fund managers of the REIT ETFs.

The first REIT ETF in the world is iShares US Real Estate ETF, IYR, listed on the New York Stock Exchange in June 2000. In Singapore, there are 2 REITs ETFs listed on SGX namely Phillip SGX APAC Dividend Leaders REIT ETF and Nikko Asset Management Asia REIT ETF.

Moreover, investors who wish to diversify into REITs do not have to transact each REIT counter of different sector or region individually and incur high transaction costs in the process. The REIT ETFs offer them a convenient method to gain exposure to multiple sectors and geographic regions with just a single fund holding.

The main purpose of diversification is to reduce risk while enjoying a stable stream of income. The main investment objective of REIT ETFs is to replicate the performance of the benchmark index that the ETF is tracking. REIT ETFs are chosen based on the index benchmark constituents. Investors can simply choose the REIT ETFs objective that best align with their investment strategy and objective.

The REIT ETF fund manager rebalances the holdings of the ETF on behalf of the ETF holders according to the investment objectives of the ETF and index benchmark criteria . Weaker REITs will be replaced by better performing REITs, which will in turn benefit the overall performance of the REIT ETF.

Learn more about Phillip SGX APAC Dividend Leaders REIT ETF and Nikko Asset Management Asia REIT ETF

Lion-Phillip S-REIT ETF

The Lion-Phillip S-REIT ETF is Singapore’s first REIT ETF to comprise purely of 26 high-quality Singapore REITs. This REIT ETF main objective is to track Morningstar® Singapore REIT Yield Focus Index. Criteria for inclusion into this index are:

1) Financial Health

2) Quality

3) Dividend Yield

Hence, investors can gain low-cost access and broad exposure to Singapore real estates through this ETF. Besides allowing investors to diversify their portfolio, this ETF provides regular and sustainable income stream through its semi-annual dividend distribution to investors. There is also potential capital growth for investors when the underlying assets of the ETF grow in value.

Comparison of SGX Listed REIT ETFs:

Lion-Phillip S-REIT ETF Phillip APAC SGX REIT ETF Nikko AM Asia Ex Japan REIT ETF
Number of Holdings 26 30 23
Dividend Frequency Semi-Annual Semi-Annual Quarterly
Country Allocation Singapore-100% Australia – 58.8%
Singapore – 29.5%
Hong Kong – 11.4%
Singapore – 60.1%
Hong Kong – 21.9%
China – 6.9%
Malaysia – 5.8%
Indonesia – 2.8%
Global/Asia – 2.5%
Sector Allocation Retail – 24.2%
Industrial – 22.4%
Office – 19.4%
Diversified – 13.8%
Hotel & Resort – 8.2%
Healthcare – 5.4%
Residential – 3.3%
Specialised – 2.3%
Retail – 47.7%
Diversified – 25.8%
Industrial – 15.4%
Office – 8.7%
Residential – 1.1%
Hotel & Resort – 1.0%
Retail – 36.7%
Industrial – 20.0%
Diversified – 19.1%
Office – 16.9%
Residential – 2.5%
Hotel & Resort – 2.5%
Healthcare – 1.4%
Cash & Equivalents – 1.0%
Top 3 Holdings Mapletree Commercial Trust – 9.9%
CapitaLand Mall Trust – 9.6%
Ascendas REIT – 9.5%
Link REIT – 10.32%
Scentre Group -9.79%
Westfield Corp – 9.26%
Ascendas REIT – 10.2%
Suntec REIT – 9.8%
Link REIT – 9.5%
Management Fee 0.5% 0.3% 0.5%
Trading Currency SGD SGD and USD SGD
Stock Code CLR BYI and BYJ CFA

Information provided are accurate as of 23 April 2018


Despite sharing several similarities with stocks, REITs are a unique asset class on their own. They offer a cost-effective way for investors to be vested in the properties market and an additional option to diversify their portfolio asset allocation. Nevertheless, investors have to take note of the disadvantages and limitations that come with REITs investments; Susceptibility to market volatility, high gearing ratio and dependence on competency and capability of REITs Fund Managers.

Through the use of REIT ETFs, investors can harness the characteristics of ETF to enhance their exposure into the REITs industry and overcome some of the disadvantages that come with REITs. The diversification aspect of REIT ETFs minimises investors’ risk exposure to a particular REIT’s sector and geographic region. In addition to the convenience offered by REIT ETFs to investors, they also provide investors with a constant dividend pay-out and dividend yield that investors may desire in a financial asset.

For more information on ETFs, please visit or call our Product Specialist at 6531 1246.

Article updated on 23 April 2018


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About the author

Mr. Joel Lim
ETF Specialist

Joel graduated from Singapore Institute of Management, University of London with a First Class Honours in Business. He was the recipient of SIM University of London’s Top Student Bronze Award in 2017 and was the worldwide examination topper for the “Financial Management” module in 2016. Joel was also commended by University of London for his excellent performance in the 2014 Examinations.

Joel is involved in ETF education, providing trading ideas and support to traders, dealers and fund managers. Joel also works closely with ETF issuers to educate retail investors about new ETFs during the Initial Offering Period.

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