Asia Pac high yield REITs from Singaporean manager
Singaporean independent fund manager UOB Asset Management is launching an Asia-Pacific real estate investment trust ETF that buys higher yielding REITs that pass through an ESG filter.
The UOB APAC Green REIT ETF (GRE) will track an index provided by the Singapore Exchange.
It invests in REITs from four countries: Japan, Australia, Hong Kong and Singapore. Japanese and Australian REITs take 80% of the fund.
Office and retail REITs – companies running corporate skyscrapers and shopping malls, basically – form the backbone of the fund. Industrial and residential real estate only take 10%.
The ESG screen is quite weak and only excludes companies that fail to “meet minimum disclosure requirements”, the factsheet says.
The fund picks the 50 biggest REITs by market capitalisation. The biggest REITs have their weights capped at 7% while countries have their weights capped at 50%.
The fund charges 0.45%.
Bernie’s commentary – How Singapore and Australia work
There’s a fair bit to say here. In no particular order:
- Australian REITs have been fantastic investments. But much of their success owes to tax arbitrages. Under Aussie law, property developers can classify their development profits as if they were rent and thereby get taxed a lot less. (Rental income is taxed at a lower rate). It’s politically interesting.
- Singapore’s ETF market is going nowhere fast. Wealth management in Singapore is old school. The banks rule the roost and if you want them recommending your funds to clients, they expect you to pay them commissions. The government wants it to stay that way as it derives a lot of employment and tax from financial services. ETFs, which bring deflation to financial services, are not something that Singapore wants.
- Picking REITs with high yields that trade below their book value used to be a good investment strategy. But these days it’s almost always a value trap. High yields on REITs often owe to their share prices going nowhere. Most REITs on high yields are shopping centres dancing in a death spiral with ecommerce and Amazon.
- This ESG screen is a bit of a greenwash exercise but at least they communicate that fact directly. Most index providers and fund managers do the same, but they’re rarely that honest. As they state in the prospectus "There is currently no standard market consensus of what “Green” means in the context of REITs "