Singapore REIT ETF?

Browsing through the search queries that brings visitors to my blog, I always come up plenty of content ideas. The area of Real Estate Investment Trusts (REITs) is one that I'm personally interested in.

Just a day or two ago, one of the the search keyword that led visitors to my Index Investing Blog is "drop in reits singapore". I guess somebody must have been spooked by the sharp drop on Thursday?

While the Straits Times Index dived 61.20 (1.77%), the FTSE ST Real Estate Index recorded a drop of 26.67 (3.17%) in comparison.

Now, does people seriously think that the only way REITs can go is up? The interest rate is low in the current environment, but it does not mean it will remain this way. Read about REITs' vicious cycle of interest rate risk here. If you're serious about REITs investing specifically in Singapore, pick up Building Wealth Through REITs by Bobby Jayaraman, and you'll know more about Singapore REITs than 90% of the investors out there. Learn, and understand what you're investing in.

Coincidentally, another search term that brought visitors here was "singapore reit etf". To the best of my knowledge, there is no such product. The closest one you can get is Phillip Singapore Real Estate Income Fund by Phillip Capital (fund size S$46m). 

Is it an ETF? No.

Will you incur additional expenses as a result? Yes.

Is it worth it? Depends on the individual.

From the perspective of a small-time investor who believes in both the capital-appreciation and dividends-paying characteristics of REITs, it is an accessible way to invest (e.g. S$200/monthly regular savings plan) and buy into 20 REITs or more. 

"Low" cost.

Instant diversification. 

Quarterly dividends.

No worries over REITs rights issue.

Of course, these come at the price of fund management fee / sales charge etc.

Lastly, there are global REITs ETFs (e.g. VNQI:US and VNQ:US) such as those offered by Vanguard. Do take note that you're going to take a severe hit (30%) in terms of tax withholding for dividends covered in my previous post.

On a side note, Vanguard has recently listed its first Hong Kong-domiciled exchange traded fund (ETF). Will they be coming the the shores of our beloved country? I sure hope so!

Tax Withholding in the United States

I had previously read about Tax Withholding in the United States, but I haven't really had the chance to experience it until recently.

If you are unaware, three key types of withholding tax are imposed at various levels in the United States:

• Wage withholding taxes,
• Withholding tax on payments to foreign persons, and
• Backup withholding on dividends and interest.

We are interested in specifically withholding tax on payments to foreign persons. Based on Wikipedia, you can see that ".. payments subject to withholding include compensation for services, interest, dividends, rents, royalties, annuities, and certain other payments. Tax is withheld at 30% of the gross amount of the payment."

What does this mean to you, the investor?
Simple. Dividends is taxed at 30%.

Anyway, just to relate my experience, I picked up a single unit of AAPL some time ago via Standard Chartered Online Trading. (and the exchange rate sucked, by the way)

Whaaaaaat? Now, just hang on a minute, isn't this an index investing blog? Well, yes, it is. My "investment" fund is solely devoted to index investing. 

However, my "hobby" fund is meant for whatever I want to use it for. Some people collect stamps, some people collect toys ; I collect stocks. You are not encouraged to this. At all.

Okay, now that I've addressed this, let's head back to Tax Withholding in the United States. I picked up AAPL not because of it's dividends, but because of this I was able to see how it worked.

On April 23, 2013, Apple's Board of Directors approved a 15% increase in the Company’s quarterly dividend and has declared a cash dividend of $3.05 per share of the Company's common stock. The dividend is payable on May 16, 2013, to shareholders of record as of the close of business on May 13, 2013.

On the 20th, the dividend was promptly credited into my Standard Chartered account. 

As you can see, the dividend is indeed USD $3.05 as stated in Apple's website. Notice there is another record stating US Withholding Tax of USD $0.92. Well, guess $3.05 * 30% = $0.915.

If you're following the advice of Millionaire Teacher Andrew Hallam and investing into a world stock ETF such as Vanguard Total World Stock ETF (which gives quarterly dividends), now you know why your dividends are shrinking! Of course, this applies to any dividends paying stock in the US, such Microsoft, Walmart and Intel. Noobie investors, take note!

Two STI ETFs, Different Dividends

One question that you might have when researching on STI ETFs is, why does the dividends differ since both are doing the same thing i.e. tracking Straits Times Index?

SPDR Straits Times Index ETF
Current Price : S$3.46
Dividend : S$0.04 (Date Paid : 19 Feb 2013)
Assets : S$380.46M

Nikko AM Singapore STI ETF
Current Price : S$3.49
Dividend : S$0.035 (Date Paid : 10 May 2013)
Assets : S$130.57M

To put things into perspective, the difference in half-a-cent dividend means for every 1,000 units, you would be getting $5 less in dividends. Let's dig a little further and we'll see one possible reason - expense ratio.

SPDR Straits Times Index ETF
Expense Ratio : 0.30

Nikko AM Singapore STI ETF
Expense Ratio : 0.48

Lower expense, higher dividends? Why is the expense ratio different? Is SPDR Straits Times Index ETF enjoying economies of scale due to it's larger fund size?

Moreover, let's take a look at Bloomberg's profile of each STI ETF, and you will see that their fund holdings proportion are different. With different underlying fund holdings proportion, it makes sense that the dividends will possibly differ as well.

SPDR Straits Times Index ETF (top holding is Singapore Telecommunications 9.956%)
Nikko AM Singapore STI ETF (top holding is Oversea-Chinese Banking Corp 10.223%)

Both ETFs may be tracking STI, but make no mistake about it, they are not the same thing. In this Motley Fool article, it mentioned that Nikko AM Singapore STI ETF will no longer be using financial derivatives, unlike SPDR Straits Times Index ETF.

Is this yet another reason to consider which ETFs you would be ultimately buying?

Nikko AM Singapore STI ETF - Cash Dividend

Received my Nikko AM STI ETF (Symbol = G3B) dividends yesterday, which was deposited into my Standard Chartered Securitites Settlement Account.

Grand Total = SGD $17.50 ($0.035 x 500)

Type : Dividend
Expiry Date : 29 April 2013
Record Date : 02 May 2013
Date Payable : 10 May 2013
Particulars : SGD $0.035

REIT or Business Trust? - Part Two -

Flipping through today's Business Times, a couple of articles (one on REIT, one on business trust, one on half-REIT half-business-trust) caught my attention. Check out my previous post on the key differences between a REIT and a business trust even though both provide access to yield-bearing assets.

At the end of the day, it is the individual investors' responsibilities to find out more about the business that they are putting their money into. Learn about the possible risks so that you will be prepared for it when the time comes.

“Never invest in a business you can't understand.”
- Warren Buffet

1. Tenants Sue CIT Manager, Trustee Over Deal (J91U)

The manager and the trustee of publicly listed Cambridge Industrial Trust (CIT) are being sued by two tenants of an $18.5-million industrial property owned by the trust. The tenants claim that Cambridge Industrial Trust Management (CITM) and RBC Investor Services Trust (RBC) reneged on a deal to sell the property to them, while CITM and RBC - in their response to the lawsuit - claim they honoured the agreement.

The two tenants, Chartered World Academy Pte Ltd (CWA) and Armorcoat International (AI), claim that CITM and RBC "went behind the plaintiffs' backs" to sell the property to a third party, Liquorland Distribution Pte Ltd. They claim the defendants "have not acted in good faith and have tried to sell the property to two different parties ... for (the defendants') own agenda of extracting more money than the agreed purchase price of $18.5 million".

Depending on the result of the lawsuit, will there be any impact to revenue and dividends? There is no such thing as a risk-free-and-collect-dividends investment and investors must be aware of this.

2. Port Workers In HK End 40-Day Strike (NS8U)

Port workers at billionaire Li Ka-shing's Hongkong International Terminals (HIT) ended the longest strike at Hong Kong's container terminal as they accepted a 9.8 per cent wage increase, resolving a dispute that damaged the city's reputation as a trade hub.

HIT is operated by Hutchison Port Holdings Trust, whose largest shareholder is Mr Li's Hutchison Whampoa.The daily financial loss caused by the strike was "significantly" cut in the last two weeks in April, HIT said on April 23, without elaboration. The daily loss narrowed to HK$2.4 million on April 5 from HK$5 million earlier.

And so, it was suffering a daily loss for a long period of time of 40 days? What does this mean for investors of Hutchison Port Holdings Trust? Lower dividends?

3. A-HTRUST To Hold EGM For Park Hotel Clarke Quay Buy (Q1P)

Park Hotel Group (the "Group") is pleased to announce that it has entered into a conditional Sale and Purchase Agreement with Ascendas Hospitality Trust ("AHTRUST") on 05 April 2013 to sell Park Hotel Clarke Quay (the "Hotel"), at a purchase price of S$300 million. See this article here if you're interested to know more. Also, note that this is their first Singapore property.

The Managers intend to fund the Total Acquisition Cost through a combination of debt and equity financing. The Managers will work with the Joint Bookrunners to determine the Issue Price to be offered in the Equity Fund Raising and the most appropriate structure and launch timing of the Equity Fund Raising so as to ensure its success.

I'm guessing, rights issue? If so, are investors in a good position to partake in the rights issue? Not everyone may have the sufficient cash flow to subscribe, which may end up in a dilution of their stake. For a separate case study, recall how CapitaMalls’ unit-count had ballooned from 1.67b at the end of 2008 to 3.46b at the end of last year due to a 9-for-10 rights issue (that’s 9 rights for every 10 shares that are owned) that happened on 2nd April 2009.

Nikko AM Singapore STI ETF is now Excluded Investment Product

Two additional ETFs – Nikko AM Singapore STI ETF (Stock code: G3B) and ABF Singapore Bond Index Fund (Stock code: A35) have been classified as Excluded Investment Products (i.e. Non-Specified Investment Products) since 30 April.

Investors can now trade four ETFs without having to be pre-qualified, including CIMB FTSE ASEAN 40 ETF (Stock code: M62 and QS0) and CIMB S&P Ethical Asia Pacific Dividend ETF (Stock code: P5P and QR9) that have been classified as EIP since 16 January 2013.

Currently, ETFs are included under the list of Specified Investment Products (SIP) unless otherwise stated. Investors who wish to trade SIPs are required to be pre-qualified by the brokers through the Customer Account Review or take the SGX Online Education Programme.

Source : SGX.com | ETFs | Specified Investment Products

You Need A Budget?

I think personal stories keep things real. At the end of the day, I'm an average guy just like you. It's not just about words in a blog. It shows the challenges that I've faced as well, and perhaps it might be something that you can identify with.

I started my working life in 2007 with a $20,000 debt. That's a lot of money, and I consider myself lucky enough to get an interest-free "student loan" from my mum. Eventually, I managed to repay the $20,000 loan in two years.

I ROM-ed in 2010, subsequently got my HDB apartment and held my wedding in 2011. The outflow of money has been tremendous (and horrifying) in the past few years and I'm slowly and steadily getting my finances back in shape.

Personally, I feel that the cornerstone of any financial planning is budgeting. Back in 2007, I created my first spreadsheet to keep track of my finances. I targeted to repay my $20,000 within two years and I met my goal.

In the past, I've never read up anything on budgeting and I just did what felt right to me. Looking back, I would say it is a form of virtual envelope budgeting.

The spreadsheet is meant to be updated daily, weekly, or at most monthly. Of course, the more frequent the better.At the beginning of the month, I would create a new worksheet which is updated with all my available bank balances, all incurred credit card expenses and expected expenses for the month.

When the spreadsheet is updated, I would be able to know the available "spare cash" I have at one glance. It might be very basic and simple, but it has served me well in excess of five years. 

It was especially useful during my renovation/wedding phase when I had to create a special edition just to stay sane. After moving to my own place in 2011, I created an expansion to include my household expenses side-by-side.

If I didn't find out about You Need A Budget (YNAB), I would still be using this spreadsheet today. The main problem I had with maintaining my own spreadsheet was that the updating can be pretty tedious and time consuming, as I could only work with the spreadsheet while I was home. But the thing is, only an accurate spreadsheet can serve its purpose of budgeting.

I tried out YNAB's 34-day free trial and loved the flexibility and efficiency that it offers with a companion Android app and cloud syncing. One thing that I have realized this year is that time can be more valuable than money, which YNAB has helped me to accomplished. Even better, even though I've spent $54.00 USD on it last month, I've managed to save an extra S$80.00 as a result of being able to better keep track of my finances. Yes, I'm a minor control freak in some sense.

Don't get me wrong, I'm not promoting this tool, and you don't have to buy/use it. There are many alternatives (some need to be purchased, many are free to use) and heck, you can even ask me for a copy of my Excel template!

The key idea is that keeping a budget has helped me tremendously, and I hope that you would start keeping one if you're not already using one. With the right tools, hopefully we would find it easier to achieve our financial goals.

Have you started keeping a budget yet?

P.S. 

I bought YNAB at 10% discount because a friend gave me a discount code. I'm extending the same offer if you are interested - go to YNAB website via this link to apply the discount.

Update
Investor Lightyear brought my attention to OCBC Money In$ights which was newly launched. Here's an article from The Straits Times about two weeks back, with more information. Check it out! Feel free to share more resources with me!