Ever wondered what is currently driving the local and regional markets? #whatstrending is a series addressing some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX, featuring insights from professionals in the community. 

Today, we hear more from Syfe, a digital wealth platform now offering Singapore-listed stocks.  Ritesh Ganeriwal, Managing Director, Head of Investment and Advisory at Syfe, shares his thoughts on market developments for S-REITs following the Fed rate cut last month. 

Q1: How have S-REITs performed in recent months on expectations of the US Federal Reserve (Fed) cutting rates? 

From Ritesh Ganeriwal, Managing Director, Head of Investment and Advisory at Syfe:

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. 

On Sept 18, the Fed declared its first rate reduction in four years, decreasing the overnight borrowing rate by 50 basis points or half a percentage point, in line with market expectations. This brings the fed funds rate to a range of 4.75% to 5%. 

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.  

As of September 24, the iEdge S-REIT Leaders Index saw an impressive gain of over 16% in Q3, while our Syfe REIT+ (consisting of an optimised portfolio of 20 most well-known S-REITs) gained 17.0% for the quarter. This brings the year-to-date performance to +3.5%. 
 

Q2: What is the outlook for the S-REITs sector after the first rate cut? 

From Ritesh Ganeriwal, Managing Director, Head of Investment and Advisory at Syfe:

We remain optimistic about the further upside potential of S-REITs even after the recent rally.  We are at the beginning of a rate-cutting cycle, with interest rates expected to continue on a downward trajectory. 

The Fed cut its key interest rate by 50 basis points to a range of 4.75% to 5%, and Fed policymakers are currently forecasting the benchmark rate to fall to 4.4% by the end of 2024, and further to 3.4% by the end of 2025.  

The lower interest rates will boost S-REITs’ earnings, given reduced financing costs. Meanwhile, the improved debt and capital environment is likely to facilitate acquisition activities, opening additional avenues for earnings expansion. 

The current distribution yield of the iEdge S-REIT Leader Index is close to 6%, which is significantly higher than other yield-generating instruments, with 10-year government bonds currently yielding 2.5%. The attractive yield spread is expected to continue drawing more institutional and retail investment interest in the S-REIT market. 

Q3: Could you share more about instruments such as the iEdge S-REIT Leaders Index that investors can use to gain diversified exposure?  

From Ritesh Ganeriwal, Managing Director, Head of Investment and Advisory at Syfe:

Besides investing directly in individual Reits, investors can also consider buying other instruments that offer exposure to the sector. 

Syfe’s REIT+ — which was launched in partnership with SGX — 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.  

In September, we rebalanced REIT+ portfolio, in line with semi-annual rebalancing for the iEdge S-REIT Leaders Index. 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. 
 

For more Syfe Research, visit www.syfe.com/magazine/

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