As fixed deposit interest rates offered by banks in Singapore continue to drop, many people are starting to explore other options for better returns.
One popular alternative is investing in Real Estate Investment Trusts (REITs). Unlike fixed deposits, which currently offer relatively low interest rates, REITs could potentially provide higher returns through regular dividend payouts. With their ability to generate income from rent and property appreciation, REITs have become an attractive choice for those seeking a more rewarding investment option in the current low-interest-rate environment.
Introducing Syfe REIT+
Launched in collaboration with SGX, Syfe REIT+ is the first portfolio that allows investors to easily invest in and track the SGX iEdge S-REIT Leaders Index, a popular index in the Singapore stock market.
Similar to the index, which tracks the largest and most liquid Singapore REITs, Syfe REIT+ offers exposure to REITs across various property sectors—retail, industrial, data centers, offices, hospitality, and healthcare. This diversification minimizes the impact of sector-specific downturns. For example, although retail REITs were pressured during the COVID-19 pandemic, the portfolio remained resilient due to its allocation to industrial REITs, which benefited from the growth in data centers, business parks, and logistics.
Syfe REIT+ Portfolio Composition
Syfe REIT+ includes 20 of Singapore’s most recognized REITs, such as Ascendas REIT, Mapletree Industrial Trust, CapitaLand Integrated Commercial Trust, Keppel DC REIT, and Frasers Centrepoint Trust.
How Syfe REIT+ Tracks the Index
While the iEdge S-REIT Leaders Index comprises 27 REITs, Syfe REIT+ is an optimized portfolio of 20 REITs, designed to balance market representation and trading liquidity, ensuring minimal tracking error and reduced trading costs.
Syfe uses a sophisticated optimization tool to construct its portfolio, achieving a tracking error of just 0.5% relative to the index. The portfolio is rebalanced twice a year to reflect changes in the index, ensuring that it remains aligned with market trends.
Corporate Actions and Dividend Reinvestment
One of the advantages of investing in Syfe REIT+ is that Syfe manages all corporate actions, such as rights issues, on your behalf. This means you don’t have to monitor and respond to individual corporate actions, saving you time and effort.
Dividends are automatically reinvested, potentially boosting your returns by an additional 0.5% annually. This can significantly offset Syfe’s tiered fees, ranging from 0.35% to 0.65% per year. For those in Syfe Black or higher tiers, there is also an option to receive dividends as quarterly payouts.
Risk Management with Syfe REIT+
Syfe REIT+ offers two investment options: a 100% REITs portfolio or a risk-managed portfolio that combines REITs with Singapore government bonds. The bond fund invests in AAA-rated government bonds, providing stability during market turbulence.
The risk-managed portfolio is ideal for investors who prefer lower volatility. During periods of increased market volatility, the portfolio’s proprietary algorithm reduces REIT exposure and increases bond allocation to protect against market downturns. However, to maintain a high dividend yield, the portfolio always retains a minimum 50% allocation to REITs.
Portfolio Performance
For investors with a higher risk tolerance and a long-term investment horizon, the 100% REITs portfolio offers higher potential returns, with an average annual return of 9.58% over the past decade.
On the other hand, the risk-managed option may suit those with a more conservative approach, offering lower volatility but slightly reduced long-term returns.
Why Invest in Syfe REIT+ Now?
Interest rates might be cut by 100-150 basis points by the end of 2024, which could boost S-REITs. Lower interest rates generally reduce borrowing costs and make REITs more appealing for income generation.
Currently, Singapore REITs are considered undervalued, with an average Price-to-NAV ratio of around 0.80. This undervaluation suggests there could be room for price growth as market conditions improve. Additionally, many S-REITs offer attractive distribution yields, which is important for income-focused investors.
Overall, the outlook for Singapore REITs in 2024 and 2025 is optimistic. Potential interest rate cuts, attractive yields, and growth in specific sectors all contribute to this positive view. However, investors should remain patient and keep an eye on changing market conditions.
