Strategies for investing in Singapore REIT mutual funds


In recent years, the Real Estate Investment Trusts (REITs) market has gained significant interest among investors in Singapore. REITs offer an attractive investment opportunity, providing a low-risk way to invest in real estate. They generate stable and consistent income for investors through rental payments from high-quality real estate properties such as shopping malls, office buildings, and hotels.

REITs also offer diversification benefits as they invest in a portfolio of different properties, reducing the overall risk for investors. In Singapore, REITs are regulated by the Monetary Authority of Singapore (MAS) and listed on the Singapore Exchange (SGX). As an investor, you can choose to invest in an individual REIT or opt for REIT mutual funds. This article will discuss the strategies you can adopt to invest in REIT mutual funds in Singapore.

Diversify your portfolio with sector-specific REITs

One of the strategies that you can adopt in investing in REIT mutual funds in Singapore is diversifying your portfolio with sector-specific REITs. As mentioned earlier, REITs invest in various properties, such as office buildings, shopping malls, and hotels. Each type of property has its own set of risks and rewards. Therefore, by investing in sector-specific REITs, you can diversify your portfolio and reduce the risk of investing in a single property type.

For example, if you are interested in investing in the retail sector, you can consider investing in CapitaLand Mall Trust or Mapletree Commercial Trust. These REITs focus on owning and managing shopping malls in Singapore. On the other hand, if you are interested in the industrial sector, consider investing in Ascendas Real Estate Investment Trust or Mapletree Industrial Trust, which own and operate industrial properties such as warehouses and factories.

Investing in sector-specific REITs allows you to take advantage of specific market trends. For instance, if the retail sector performs well, REITs specialising in shopping malls may provide higher returns than other sector-specific REITs. It is essential to research and understand the performance and prospects of each sector before investing in REIT mutual funds.

Consider geographical diversification with overseas REITs

Apart from diversifying your portfolio with sector-specific REITs, you can also consider geographical diversification by investing in REITs with exposure to overseas markets. This strategy allows you to spread your risks across different countries and benefit from market trends in other regions.

Several REITs with overseas exposure exist in Singapore, such as Ascendas India Trust, Keppel DC REIT, and Mapletree Logistics Trust. These REITs own properties in countries like India, Australia, and China, providing investors with a global portfolio of assets. Investing in overseas REITs also offers currency diversification, which can provide a hedge against currency fluctuations.

However, it is crucial to note that investing in overseas REITs may come with higher risks, such as political instability or economic downturns in other countries. Therefore, thorough research and understanding of the market and risks are essential before investing in overseas REITs.

Consider REIT ETFs for passive investing

Another strategy for investing in REIT mutual funds is considering REIT exchange-traded funds (ETFs). A REIT ETF is a type of mutual fund that tracks the performance of a REIT index. These ETFs expose investors to a diversified REIT portfolio with lower fees than actively managed REIT mutual funds.

REIT ETFs are suitable for passive investors who do not want to spend time researching and selecting individual REITs. An investor can choose between various REIT ETFs listed on SGX, such as the NikkoAM-StraitsTrading Asia ex-Japan REIT ETF and Phillip SGX APAC Dividend Leaders REIT ETF.

However, it is essential to note that REIT ETFs come with their risks. As a passive investor, you do not have control over the individual REITs in the fund, which may result in underperformance compared to active management.

Consider income-focused REIT funds

If you are an income-focused investor, consider investing in REIT mutual funds that focus on generating regular income for investors. These income-focused REIT funds aim to provide a steady stream of dividends from the rental income generated by the underlying REITs in the portfolio.

Examples of income-focused REIT funds in Singapore include Lion-Phillip S-REIT ETF and Fullerton Core Income Fund. These funds have a higher distribution yield than traditional mutual funds, making them suitable for investors looking for regular income.

However, it is essential to note that investing in income-focused REIT funds may come with lower capital appreciation potential. These funds may have a lower risk threshold, resulting in lower returns than other REIT mutual funds.

Consider actively managed REIT mutual funds

Actively managed REIT mutual funds are another option for investors looking to invest in REITs. A skilled fund manager oversees the management of these funds, carefully curating and supervising the selection of underlying REITs within the portfolio. Active management aims to outperform the benchmark index by making strategic investment decisions.

Examples of actively managed REIT mutual funds in Singapore include Phillip SING Income Builder and First REIT Global. These funds have a higher management fee than passive investing options, but they aim to generate higher returns for investors.

However, it is crucial to note that active management does not guarantee outperformance, and there are risks involved in this strategy as well. Therefore, it is essential to research and understand the fund manager’s track record and investment strategy before investing in actively managed REIT mutual funds.

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