New APAC REITs ETF Launched in Hong Kong as Investors Hunt for Yield and Stability

Samsung Asset Management Hong Kong has recently launched the Samsung S&P High Dividend APAC ex NZ REITs ETF, the first ever REIT-based ETF in Hong Kong. The technology sector has been the focus of ETF investors so far this year in Hong Kong, but this new ETF offers considerable diversification and turns attention on those areas of the real estate market that are performing well via a diversified set of REITs across Australia, Japan, Singapore and Hong Kong. Investors are keenly looking for income vehicles in such a global low yield environment, and there is also the potential for capital appreciation as the underlying index basket had a P/B ratio of only 0.88x as of 30 September 2020. The APAC REIT market has bounced 63.95% since the lows of March while the US REIT market has recovered only 33% and Europe less than 6%.

The Samsung S&P High Dividend APAC ex NZ REITs ETF trades on the HKex in HK dollars as 3187.HK or in US dollars as 9187.HK. Tracking the performance of the S&P High Yield Asia Pacific-Ex New Zealand REITs Select Index, the ETF set its listing price at USD2.50 per unit, or roughly HK19.40, with an initial minimum investment of approximately USD500 or roughly HK$3900 for a board lot size of 200 fund units.

Dividend is payable semi-annually from 2021 in USD at the Manager’s discretion. The underlying index comprises 30 REITs listed in developed markets across Asia Pacific including Singapore, Hong Kong, Australia and Japan, with total market capitalisation of approximately USD71.94 billion and an indicated dividend yield of 5.73% for the underlying index as of September 30. The ETF has a management fee of 0.65%.

The 30 underlying REIT holdings are diversified across multiple sectors from office and apartment buildings to hotels, warehouses, hospitals, shopping centres, parking lots, and other segments, with business spanning from Asia to US and Europe.

“This exciting new ETF provides a low-cost tool to conveniently invest in the property market across multiple geo-markets,” reports Alex Yang, Vice President of Institutional Solutions at SAMHK. “Historically there is low correlation with major broad market indices globally, and it could serve as a tool to capture the potential post Covid-19 rebound. It holds about 30 REITs listed in developed markets across Asia Pacific (excluding New Zealand) with the highest trailing 12-month dividend yield.”

Yang comments that in an extremely low yield environment globally, there is rising demand for investment tools that provide stable and relatively attractive income. “If you think about traditional dividend paying stocks, such as HSBC and Standard Chartered, some of them actually stopped paying dividends in April. Meanwhile, interest from bank deposits or bonds has become very unappealing. We researched across the entire market and found that REITs are actually one of the very few asset classes that can still generate relatively stable yield at the moment.”

Yang explains that the ETF is an index tracking product, and the 30 REITs are selected mainly based on their trailing dividend yield for the past 12 months in the index universe. He adds, “of course candidates will first need to fulfil other index selection criteria such as liquidity, and what we get is a portfolio that comprises 30 REITs with the highest dividend yield across the developed markets in Asia-Pacific, namely Japan, Australia, Singapore, as well as Hong Kong. These four markets have a relatively mature REIT market and a proven track record of collecting rents at a relatively stable rate.”

He explains that not only does the dividend yield appeal, as it is relatively high compared to equities in general, or to investment grade bonds, but there is potential for capital appreciation of the ETF that is reflected by the movement of the ETF NAV. “The dividends distributed by ETF holdings will go into a cash account of the sub-fund, then they will be paid out twice a year in June and December starting from 2021 at the manager’s discretion. Currently, the indicated dividend yield of the portfolio as represented by the underlying index is 5.73%.”

Yang also reports that over the past decade, the average yield of the underlying index is around 5.14%, which has been quite stable. “The accumulative total return of the index, which is comprised of price movement and dividend reinvestments, net of tax, is over 105% for the past 10 years, which means there is an average annualised return of 7.5%. That would include 5.14% of the dividend yield plus over 2% of capital appreciation.”

SAMHK anticipates robust demand from both institutional and retail clients.

“On the institutional side, we see that insurance companies can potentially leverage the income streams from this ETF to fulfil their payout obligations,” he explains. “Asset managers may also use it to enhance the dividend payout of their portfolios. And on the retail side, investors can also use this product to enhance their income streams, which is especially valuable in this low yield environment.”

The Hong Kong listing, Yang reports, means there is no stamp duty for trading via secondary market or creation/redemption in primary market, helping investors obtain lower cost access to a regional exposure.

“In addition, for an ETF with the same exposure but listed in the US, foreign investors would be subject to a 30% dividend withholding tax,” he explains. “But as this ETF is listed in Hong Kong, investors don't need to pay dividend tax.”

Yang offers some further encouragement to investors, noting that REITs in APAC rebounded over 63.95% from the March lows as measured by the S&P High Yield Asia Pacific-Ex New Zealand REITs Select Index, while the US REIT market, measured by the Dow Jones US Select REIT Total Return Index, only rebounded 33.76% and the Europe REIT market, measured by the S&P Europe REIT (Local Currency) Net Total Return Index, only rebounded 5.96% as of 30 September 2020. “This demonstrates the resilience of the APAC REITs market,” he says. “Currently valuation of the APAC REITs sector is very attractive and still lower than the historical average, with a price to book ratio of only 0.88 times.”

Robin Lo, Managing Director and Head of APAC at S&P Dow Jones Indices, said: “We are pleased to have licensed the S&P High Yield Asia Pacific-Ex New Zealand REITs Select Index to SAMHK to serve as the basis for the first REITs ETF in Hong Kong. We look forward to having more collaborations in the future with SAMHK, one of Asia’s leading financial institutions.”

SAMHK is principally engaged in asset management and securities investment advisory services in Hong Kong. It holds licenses from the SFC to conduct Type 4 (advising on securities) and Type 9 (asset management) regulated activities.

Jaekyu Bae, CIO and Deputy CEO at Samsung Asset Management, commented on launching the ETF: “Over the past decade, REITs have developed into an important force in Asia Pacific’s booming property market. In 2019, APAC REITs raised a record-breaking amount of capital at over USD14 billion. The listing of Samsung S&P High Dividend APAC ex NZ REITs ETF is the evidence of SAMHK’s firm commitment in bringing broad, timely and relevant investment options to global ETF investors.”