Review: NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX: CFA)

So, you’re keen to invest in Real Estate Investment Trusts (REITs) but you want a diversified portfolio instead of picking individual REIT stocks? You’re in the right place.

There are a few REIT ETF in Asia, and NikkoAM-StraitsTrading Asia ex Japan REIT ETF (also known as NikkoAM-STC Asia REIT ETF) is one of them.

From the name itself, it’s hard to tell what’s covered in NikkoAM-StraitsTrading Asia ex Japan REIT ETF. In a layman’s term, this ETF covers the top REITS in Asia, but minus Japan. It pays out quarterly dividend and can be bought via lump sum or monthly Dollar-Cost-Averaging (DCA).

Now, let’s dig into the details.

ADVERTISEMENT

What is NikkoAM-StraitsTrading Asia ex Japan REIT ETF?

NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX: CFA) is an Fund that tries to replicate the performance of the FTSE EPRA Nareit Asia ex Japan REIT Index, which is an index compiled by FTSE International Limited, that aims to represent general trend of REITS across developed and emerging economies in Asia excluding Australia, New Zealand and Japan.

This is a 10% Capped Index, which means the largest weighting any REIT can have is 10%.

At the time of writing, NikkoAM-StraitsTrading Asia ex Japan REIT ETF holds more than 20 REITS that are listed in stock exchanges across Asia countries. Majority of the REITS are concentrated in Singapore. The rest are in China, Hong Kong, India, Malaysia, Thailand and Indonesia.

Key Information

Below are some key information about NikkoAM-StraitsTrading Asia ex Japan REIT ETF.

ADVERTISEMENT

Components

The Index constituents are reviewed on a quarterly basis in March, June, September and December.

To check the latest components and weighting of this ETF, go to NikkoAM-StraitsTrading Asia ex Japan REIT ETF homepage, click “Document” tab at the header, then click “Indicative Holding.”

As of December 2020, the top 10 components of NikkoAM-StraitsTrading Asia ex Japan REIT ETF are as follow.

ComponentWeight (%)Country of Operation
Capitaland Integrated Commercial Trust10.12Singapore
Ascendas Real Estate Investment Trust10.04Singapore
Link Real Estate Investment Trust9.84Hong Kong
Mapletree Logistics Trust7.81Singapore
Mapletree Industrial Trust6.63Singapore
Mapletree Commercial Trust6.54Singapore
Frasers Logistics & Commercial Trust5.15Singapore
Keppel DC Reit4.78Singapore
Suntec Real Estate Investment Trust4.32Singapore
Frasers Centrepoint Trust3.72Singapore
Source: ETF Information Pack

As seen from the table above, the ETF is highly concentrated in Singapore at the moment. I think the the ETF is a good choice for investor who believes that REIT in Singapore is stable and will continue to improve in the long run, but would like a hedge against unforeseen decline in Singapore’s REITS.

ADVERTISEMENT

Annual Reports and Half Yearly Reports

For ease of reference, here are all the links to download annual reports and half yearly reports from SGX website:

Expense Ratio

FY EndingExpense Ratio (%)
30 Jun 2021TBA (Sep 2021)
30 Jun 20200.6
30 Jun 20190.6
30 Jun 20180.6
30 Jun 20170.6
Source: Annual Reports

Expense ratio is the expense of a Fund divided by the price. You want to invest in Funds that has the lowest expense ratio as possible, thus maximizing your gain.

The expense ratio of both SPDR STI ETF and Nikko AM STI ETF is about 0.3%. That means, NikkoAM-StraitsTrading Asia ex Japan REIT ETF is less efficient than STI ETF. However, it is comparable to Lion-Phillip S-REIT ETF, which is a Fund that tracks the top REITS in Singapore.

For me, personally, the maximum expense ratio I can tolerate when investing in a passive fund is 1%. Thus, the expense ratio of this ETF is still acceptable for me.

ADVERTISEMENT

Tracking Error

FY Ending1 Year Tracking Error (%)
30 Jun 2021TBA (Sep 2021)
30 Jun 20200.57
30 Jun 20190.64
30 Jun 20180.64
30 Jun 2017N.A.
Source: Annual Reports

Tracking error is the difference of performance (return) between the ETF and the index it’s trying to mirror. You want to invest in Funds that has the lowest tracking error as possible.

The 1-year tracking error of both SPDR STI ETF and Nikko AM STI ETF is less than 0.3%, meanwhile the 1-year tracking error of NikkoAM-StraitsTrading Asia ex Japan REIT ETF is about 0.6% (which is, again, comparable to Lion-Phillip S-REIT ETF‘s tracking error).

ADVERTISEMENT

NikkoAM-StraitsTrading Asia ex Japan REIT ETF Dividend

Here are all the dividend paid out by NikkoAM-StraitsTrading Asia ex Japan REIT ETF since 2017.

Ex DatePayment DateDividend RatePrice during Ex-dateYield on Ex-date
4 Jan 20214 Feb 2021S$ 0.01120S$ 1.1231.00 %
1 Oct 20203 Nov 2020S$ 0.01380S$ 1.0941.26 %
1 Jul 20204 Aug 2020S$ 0.01550S$ 1.0991.41 %
1 Apr 20206 May 2020S$ 0.01460S$ 0.9751.50 %
2 Jan 20205 Feb 2020S$ 0.01390S$ 1.242 (est)1.12 %
1 Oct 20194 Nov 2019S$ 0.01250S$ 1.261 (est)0.99 %
1 Jul 20191 Aug 2019S$ 0.01130S$ 1.300 (est)0.87 %
1 Apr 20196 May 2019S$ 0.01180S$ 1.226 (est)0.96 %
2 Jan 20191 Feb 2019S$ 0.01380S$ 1.103 (est)1.25 %
1 Oct 20185 Nov 2018S$ 0.01290S$ 1.123 (est)1.15 %
2 Jul 201816 Jul 2018S$ 0.01046S$ 1.088 (est)0.96 %
2 Apr 201816 Apr 2018S$ 0.01238S$ 1.102 (est)1.12 %
2 Jan 201815 Jan 2018S$ 0.01117S$ 1.167 (est)0.96 %
2 Oct 201716 Oct 2017S$ 0.01128S$ 1.086 (est)1.04 %
3 Jul 201717 Jul 2017S$ 0.01248S$ 1.063 (est)1.17%
Source: SGX
ADVERTISEMENT

Your dividend yield will depends on your buying price. For the sake of simplicity, assuming you buy the stock on its Ex-date, the annualized dividend yield of this ETF varies between 4% to 5.2%.

The dividend yield of NikkoAM-StraitsTrading Asia ex Japan REIT ETF is certainly better than STI ETF because the components of this ETF consists of REITS. REITS usually distribute 90% of their income as dividend, so it’s expected that dividend yield is on the high side compared to non-REITS stocks.

If we compare the dividend of NikkoAM-StraitsTrading Asia ex Japan REIT ETF and Lion-Phillip S-Reit ETF, the latter has dividend yield of less than 5% and a less diversified bucket. In my opinion, this ETF has slightly better dividend compared to its S-REIT cousin.

Target Price

Again, for the sake of simplicity, let’s take the latest 4 quartely dividend and divide it by your desired yield to get the target price.

If your desired dividend yield is 4%, then the target price is: (0.01120+0.01380+0.01550+0.01460)/4% = 0.0551/4% = S$ 1.378.

If your desired dividend yield is 5%, then the target price is: 0.0551/5% = S$ 1.102.

If your desired dividend yield is 6%, then the target price is: 0.0551/6% = S$ 0.918.

ADVERTISEMENT

Risks

As with any other stocks, investing in NikkoAM-StraitsTrading Asia ex Japan REIT ETF has its own risks. Here are the risks that I can think of:

  • All of the stocks in this ETF are concentrated in Asia region, with majority of the stocks in Singapore and Hong Kong. Any regional crisis or regional political instability in Asia will undoubtedly bring down the performance of this ETF.
  • The Fund is traded in two different currency denominations on the SGX, the main currency is SGD while the secondary currency is USD. The price of the USD counter is affected by exchange rate. Thus, the performance of the USD counter may not be the same as the primary counter (SGD).
  • Interest rates volatility. One of REIT’s main expenses is interest rate. When interest rate rises, profit will be undoubtedly affected.
  • Shift in the demand for space. The global events that happen in 2020 (social distancing, rising of e-commerce, work from home) may or may not affect the demand for retail and office spaces in the future. If it does, the performance of this ETF will be affected.
ADVERTISEMENT

Alternative Funds

If you’re not comfortable with NikkoAM-StraitsTrading Asia ex Japan REIT ETF for whatever reasons, here are some alternative funds you can consider:

How to Invest in NikkoAM-StraitsTrading Asia ex Japan REIT ETF

Here are several ways you can invest in NikkoAM-StraitsTrading Asia ex Japan REIT ETF:

ADVERTISEMENT

My Personal Take

I love REITS funds because of their high dividend, and because they save me the hassle of trying to pick the correct REITS (which I’m really bad at).

Personally, I like this fund because it’s reasonably diversified (even though the majority of its constituents are concentrated in Singapore and HK). I’ll definitely look to invest more in global or US REITS to balance my exposure.

For me, the historical dividend yield is better compared to what I get when I picked individual REITS. So, investing in a REITS fund is obviously better than picking stocks for me. I also love the fact that this ETF is paying quarterly dividend, yay to more frequent payday!

I am currently investing in this fund through DBS RSP. Each month I contribute a few hundreds to buy this fund.

This is not an endorsement to invest in this ETF. Before you invest, do note that REITS are quite risky in nature. Your capital is not guaranteed. During economic downturn or real estate bubble, you may need years to recover your loss of investment. Only invest money that you can afford losing.

ADVERTISEMENT

Featured image: Canva/Getty Images Pro

Leave a Reply