S-REITs staged a strong comeback in Q3, fueled by the Fed’s decisive move to cut interest rates. With inflation falling and the labour market softening, the Fed has recalibrated its monetary policy to focus on fostering economic growth. This change in monetary policy has created a more favourable backdrop for S-REIT investors, leading to a surge in interest and record inflows in the second half of the year. Consequently, the iEdge S-REIT Leaders Index saw an impressive gain of over +16% in Q3.
Performance Review of REIT+
This positive momentum also benefited our Syfe REIT+ portfolios, which saw substantial uptick in investor inflows. Thanks to renewed interest and ongoing portfolio optimisation, Syfe REIT+ experienced a robust recovery in Q3. As of September 24th, Syfe REIT+ (100% REITs) delivered an impressive +17.0% for the quarter, bringing the year-to-date (YTD) performance to +3.5%.
Due to our ongoing portfolio optimisation, the REIT+(100% REITs) has managed to consistently outperform its benchmark, the iEdge S-REIT Leaders Index. Since its inception in April 2020, REIT+ (100% REITs) has achieved a cumulative excess return of +5.4%.
Past Performance
Outlook of S-REITs After the First Fed Rate Cut
After the strong rally witnessed over the last quarter, we remain optimistic about the further upside potential of S-REITs.
- We are at the beginning of a rate-cutting cycle, with interest rates expected to continue on a downward trajectory. In the FOMC’s September 2024 meeting, the Fed cut its key interest rate by 50 basis points (0.50%), bringing it down to a range of 4.75% to 5%. Fed policymakers currently forecast the benchmark rate to fall to 4.4% by the end of 2024, and further to 3.4% by the end of 2025.
- Lower interest rates will boost S-REITs’ earnings. Reduced financing costs translate directly into higher earnings growth for REITs. Moreover, the improved debt and capital environment is likely to facilitate acquisition activities, opening additional avenues for earnings expansion.
- The return of institutional investors to boost S-REIT flows. The distribution yield of the iEdge S-REIT Leader Index offers a dividend yield close to 6%. This is significantly higher than other yield-generating instruments, with 10-year government bonds currently yielding 2.5%. We have seen institutional investors returning to S-REITs this quarter, and the attractive yield spread is expected to continue drawing more institutional and retail investment interest in the S-REIT market.
Main Changes from the Rebalancing
In September, we have rebalanced REIT+ portfolio, in line with semi-annual rebalancing for the iEdge S-REIT Leaders Index. Syfe REIT+ tracks this index, and is also rebalanced twice a year.
During this semi-annual rebalancing exercise, OUE Real Estate Investment Trust (Ticker: OUEREIT SP) was removed from the iEdge S-REIT Leaders Index due to limited liquidity.
Following this benchmark change, OUE Real Estate Investment Trust (Ticker: OUEREIT SP) has been excluded from the Syfe REIT+ portfolio, and Starhill Global REIT (Ticker: SGREIT SP) has been added.
Please find below the updated list of constituents and their respective allocations after the rebalancing and Syfe’s optimization process.
Updated List of Constituents
Syfe REIT+ Strategy
Launched in partnership with the SGX, REIT+ is an optimised portfolio of the 20 most well-known Singapore REITs. Instead of fully replicating the iEdge S-REIT Leaders index, we use an optimisation process to construct an index-tracking portfolio.
Our selection focuses on REITs that are SGD-denominated, liquid, and backed by a decent market capitalisation and reputable management teams. The optimisation process, especially the exclusion of USD-denominated REITs such as Manulife US REIT (Ticker: MUST SP), has contributed to the outperformance of REIT+ portfolios.
Additionally, our investment team manages corporate actions like rights issues and acts in your best interest. Dividends are also automatically reinvested to enhance your returns.
You must be logged in to post a comment.