Asia Pacific’s real estate investment trusts (REITs) are expected to outperform the broader market on their dividend prospects as economies reopen. According to a recent report by Goldman Sachs published in June, the relative stability and higher visibility of dividends in the REIT sector has helped it outperform the overall market during periods of rate cuts and slow economic growth. With higher certainty in rental income due to the gradual reopening of business activities in the region, investors may consider building back exposure in this defensive asset class. REITs have generally been favoured by investors as a way to add stability in their portfolios through its stable dividend yield because REITs are required to distribute at least 90% of its profits to shareholders.
But how can investors gain exposure to REITs in the most cost-effective manner?
Following the listing of the TradePlus MSCI Asia ex Japan REITs Tracker (“REITs Tracker” or “Fund”) on Bursa Malaysia, local investors now have the option of investing into a basket of REITs listed across Asia ex-Japan in a single trade. However, there is an additional smart beta factor that differentiates this ETF from other available instruments to help investors maximise their yield.
Seeking High Dividend Yielders
As a smart beta ETF, the TradePlus MSCI Asia ex Japan REITs Tracker is focused on seeking out high and consistent dividend yielding REITs through the smart beta index, namely the MSCI AC Asia ex Japan IMI/Equity REITs Custom High Dividend Tilted Capped Index (the "REITs Index").
By scouring the entire universe of REITs listed in Asia ex-Japan, the smart beta factor applies a series of screening filters to pick out REITs that only offer higher than average dividend yield as well as demonstrate payout consistency.
For example, the REIT must have dividend yields that are higher than the respective broader market average. Those REITs without a strong historical track record of consistent dividend payment will not be included. To rectify anomalies, REITs whose dividend payout is extremely high or negative will also be excluded as it does not pass the sustainability test of the smart beta selection. Only REITs that pass these screening filters are added into the customised index.
Investors can then be assured that they only have exposure to REITs that are tilted towards higher dividend yields and have sustainable income distribution. The strategy has historically provided an average annual dividend yield ranging between 4% – 6% per annum. Some of the top holdings of the REITs Index include prime property names such as CapitaLand Mall Trust, Mapletree North Asia Commercial Trust and Link REIT which span across various sub-sectors of the industry including retail, logistics, offices, and residential.
Investors would then benefit from having a diversified exposure across a wide range of REITs listed in foreign markets, which would otherwise not be easily accessible or may be too costly to trade individually. Local investors also would not have to bother themselves with the foreign currency exchange as the REITs Tracker is traded in Ringgit on the local bourse.
Table 1: Top 10 Holdings of the REITs Index
Staying Defensive with Dividends
Against the current volatile environment, investors may want to take a defensive stance and consider building exposure in REITs to buttress their portfolios. As the economy gradually restarts, the REITs sector offers investors plenty of opportunities to earn attractive dividend yields and add stability to their portfolios.
The REITs Tracker provides investors access to the highest dividend-yielding REITs listed across Asia ex-Japan with sustainable payouts that would provide a steady income stream for their portfolios. With valuations also turning attractive due to the indiscriminate sell-down across all asset classes following the global stock market rout in March, it may even be an opportune time for investors to gradually build their position again with REITs.
In the prevailing low interest rate environment, dividend yielders are often sought after by investors to reap good returns. By generating a steady income stream during uncertain times, a dividend strategy helps provide a ballast to one’s portfolio to ride through the volatility ahead.
Feel free to contact the ETF team for more info, or reach out to us via any of the below platforms for more information.
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Warning Statement: A copy of the Prospectus for the TradePlus MSCI Asia Ex Japan REITs Tracker can be obtained at Affin Hwang Asset Management's (“AHAM Capital”) dedicated website at www.tradeplus.com.my. Investors are advised to read and understand the contents of the Prospectus dated 9 July 2020 for TradePlus MSCI Asia Ex Japan REITs Tracker before investing. There are fees and charges involved when investing in the fund stated herein. Investors are advised to consider and compare the fees and charges as well of the risks carefully before investing. Investors should make their own assessment of the risks involved in investing and should seek professional advice, where necessary. The price of units and distribution payable, if any, may go down as well as up and past performance of the fund should not be taken as indicative of its future performance. The Securities Commission Malaysia has not reviewed this material and takes no responsibility for the contents of this material and expressly disclaims all liability, however arising from this material.
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