NikkoAM-Straits Trading ex-Japan REIT ETF : Should You Invest?

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NikkoAM will be launching a new REIT ETF on SGX. The new REIT ETF named Nikko AM-Straits Trading ex-Japan REIT ETF is set to list on 29th March 2017.

If you’d like to invest in REITs but are too busy to analyse individual REITs, this could suit you. But before you jump into it, let’s take a look at its features:

Key features of the Nikko AM-Straits Trading ex-Japan REIT ETF

  • Investment Objective:

The investment objective of the ETF is to replicate as closely as possible, before expenses, the performance of the FTSE EPRA/NAREIT Asia ex-Japan NET Total Return REIT Index, or a similar index that gives, in the opinion of the Manager, the same or substantially similar exposure as to the Index. (The Manager would have to release a 3 months’prior written notice to the trustee and the holders should they decide to make a change in the underlying index)

What makes up the FTSE EPRA/NAREIT Asia ex Japan Net Total Return REIT Index?

As of 30th November 2016, the underlying index would expose investors to the following:

REIT Index FTSE Breakdown

  • Index constituents selection method

The constituents were shortlisted after being screened for size and liquidity, Currently, Singapore REITs make up 14 of its 23 constituents.

  • Dividends

The forward 12-month gross dividend yield for these 23 REITs according to Bloomberg data is 6.11 per cent. After subtracting about 0.6% of the expense ratio and 17% of the withholding tax on the dividend received, the distribution will be around 5%.

Do take note that the dividend is not guaranteed and the fund’s plan to distribute the dividend on the quarterly basis.

Top 10 largest constituent securities for the underlying index as at 31st January 2017:

NikkoAM-Straits Trading ex-Japan REIT ETF Largest Constituents

My view

As compared to the previous REIT ETF managed by Phillip Capital, the NikkoAM REIT ETF has a larger exposure to Singapore REITs.

However due to the business nature of the constituent REITs, the NikkoAM REIT ETF is not solely focused on the Singapore market. It is also exposed to the overseas REITs market.

You can consider this ETF if your portfolio do not have much exposure to REIT currently and you would like to gain some exposure in the REITs sector.

Do take note that all of the above information are the summary and my personal opinion. This is not constitute to financial advise of any form. You are advised to read the brochure, prospectus and product highlight sheet before you decided to invest.

Additional Information

  • Is it true that the IPO requires an initial investment of $50,000? If so…non cash rich investors may have to skip it

    • no. minimum subscription is 100 units which is $100. do take note that minimum commission apply. you can find out more with your broker. $50,000 investment is only if you want the fund authorised participating dealers to create new unit for you. you can the buy and sell like stock once it is listed

    • Hi Dennis,

      depend on how you view it. the risk of investing in reit ETF is lower than individual Reit because of diversification.

      you will get higher yield if you can select a better REIT. for those investors who are want diversification, then REIT ETF is the better choice.

  • Thanks for the analysis. Qn: minimum commision is 0.6%?… so if I want to buy 100 units at IPO price of $1, I will actually be getting only 99 units?

    on the ETF itself, it does offer good exposure to regional REITS.

    • Hi Robin,

      commission is 0.25% or minimum $10. please check with your broker for the exact commission. 0.6% is the fund estimated expense ratio. it will be deducted within the fund.

      if you subscribe 100 units during IPO, you need to invest $100+commission

    • Hi Mary,

      you can approach your broker if you have. else, you can approach Phillip Securities, dbs vickers, ocbc and uob for the subscription.

  • Hi,
    Assuming gross dividend of 6.11%, and assuming all countries’ dividend withholding tax is 17%, the ETF receives 6.11 × 0.83 = 5.07%. Assuming expense ratio of 0.6%, whats left for investors is 4.47%? Is this calculation correct? Thanks.

    • Hi,

      thanks for your detailed calculation. I am currently checking with the fund manager. I believe there are a lot of assumptions in this and they might not able to give me the full calculation.

      anyway, dividend yield is just projection and not guaranteed.

      I will let you know if I receive any update from the fund manager.

      • Hi.
        Index factsheet
        http://www.ftse.com/analytics/factsheets/home/search
        FTSE EPRA/NAREIT Asia ex Japan REITs Index

        You can see the difference between total return and total return net is about 0.9%. With gross dividend yield of about 6.1%, net dividend yield is about 5.2%, after fees of 0.6%, investors gst around 4.6%. The advertised 5% is misleading. Just my layman understanding. Please correct me if I’m wrong.

        • I think we should not deduct two times for the fees. Your calculation is 0.9% for the index expense and another 0.6% for the fund which I think is double counted. According to the fund presentation, based on the distribution per unit of the REITs in the Index over the period of 2011 – 2016, the yield is 5%. I am not sure how they calculate. Again, this is investment, there is no guaranteed in term of payout.

          • From nikkoam website, 5% is Based on distribution per unit of REITs in the Index^ over the period of 2011 – 2016.

            So after fees, that would be about 4.4%. Again it points to ~4.5% kind of yield. So investors be informed. 🙂

    • You can’t apply the 17% tax on the entire dividend yield. Only taxable income from Singapore property rentals is subject to this tax. Read in the papers the estimate is about 40-50bp impact. Hence factoring in the TER at 60bp, the fund seems able to pay 5% thereabouts. But this is based on current constituent composition, weightage, share prices, forecast dividend payouts etc. Obviously if the share prices run up, the yield levels will naturally fall. Or if there is more inclusion of lower dividend yielders, say HK REITs, into the index, then the blended yield will also be affected.

      • Hi Bobby,

        I am not sure how exactly they calculate the dividend yield after all the expense ratio and tax. Again, like what you mention, it is depend on price and underlying holding. All numbers are projected only

        Louis

  • Hi Louis

    I attended the presentation by management of this REIT tonite. The gross dividend yield of 6.11 excludes many other fees and taxes. From what I gathered, those property overseas may be subject to oversea taxes as well.

    After attending the presentation, I’m less confident of going in, albeit 60+ % are Spore REITs. These traditional REIT ETF may soon be overtaken by disruptive innovations of AirBnB, online marketing and others. Many retail malls in Spore are struggling, even Grade A office space are letting out at Grade B rates, hotels’ room occupancy are being threatened by over-supply and more budget travellers will squeeze out these 5-star lodgings. More factories are relocating to cheaper Iskander. Even the yield of 4% seems optimistic.

    • Hi Fred,

      Good to hear that you did your in depth analysis for the fund. Appreciate your sharing.

      If you are not confident in the fund, then dont invest first. You can monitor the performance after IPO and see if they can distribute the projected 5% yield.

  • Don’t want to make any conclusions but some pointers to ponder before decision making.

    1. Why did they time the ipo at this time when US will be increasing interest rates soon? ( once this month and perhaps up to 3 more increases this year)

    2. If it is so yummy, why did they make it so easy in such small units to subscribe ? Basically all retail investors can buy. What’s in for all the constituents of the index? Are they too highly geared that they need this fund to private place the allocations going forward?

    3. There is an increasing trend of market trade protectionalism looming and the demand for industrial office and spaces might soften and thus yield may be lower if bought at current prices. Did u consider this risk?

  • Hi, thanks for putting this article together.
    Very informative.
    1 question though, dividend yield aside, what’s the past 10 year capital gains for this?

    Advice appreciated.
    Marc

  • The ETF has done well. Share price at $1.06 already. Up 6% from IPO price, rising interest rate notwithstanding.. Nice!

  • Hi there, thanks for putting the arictle together.
    Can I check,
    1) Is 17% withholding tax for the companies based in SG? Or the companies based overseas?

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