Syfe REIT+ Portfolio Rebalancing (Sep 2024) – OUE REIT Dropped

Syfe REIT+ portfolio has just been rebalanced in line with the September 2024 semi-annual rebalancing for the iEdge S-REIT Leaders Index.

This twice-a-year rebalancing was completed on 24 September 2024.

The idea of using Syfe REIT+ is to rely on largely passive management, which means I don’t usually check my portfolio very often.

Once in a while, Syfe would send me an email to notify the latest updates on their end.

Key Changes to Syfe REIT+ For Sep 2024

Real estate investment trusts (REITs) are funds that invest in a portfolio of income-generating real estate assets such as shopping malls, offices, hotels and industrial properties with the aim of generating income for the REIT’s unit holders.

Syfe REIT+ (review included) is a Singapore REIT portfolio that tracks the SGX’s iEdge S-REIT Leaders Index.

The iEdge S-REIT Leaders Index is a narrow, tradable, adjusted, free-float market capitalization-weighted index that measures the performance of the most liquid real estate investment trusts in Singapore in SGD.

Here are the key changes for this semi-annual update.

• Inclusion: Starhill Global REIT
• Exclusion: OUE Real Estate Investment Trust

This was the exact opposite of what happened during the last Syfe REIT+ rebalancing in March 2024, when Starhill REIT was excluded, and OUE REIT was included. Considering both their tiny weighting, this change is rather insignificant.

If you are wondering about the flip-flop in the constituents of the iEdge S-REIT Leaders Index, remember that a specific methodology governs the inclusion of REITs. Liquidity criteria such as Average Daily Traded Value and Daily Traded Velocity must be met by REITs in order for them to be included in the index.

Syfe REIT+ Updated List Of Constituents

The constituents list has been updated to reflect the inclusion and exclusion below.

The methodology for the iEdge S-REIT Leaders Index takes into account average daily traded value, daily traded velocity, semi-annual free-float market capitalisation, capping, and weighting, which I elaborated on in my Syfe REIT+ review.

In particular, if you look at the weighting more closely, you will notice that it resembles the table above with the adjustment factor in place, which intentionally overweights the top REITs but caps them individually at 10%.

That’s a total of 7 REITs making up 70% of the portfolio.

Additionally, notice that Digital Core REIT is excluded from the portfolio (learn more below), although it is included in the CSOP iEdge S-REIT Leaders Index ETF.

The Syfe REIT+ Portfolio Optimization Strategy

I have written about Syfe’s allocation strategy, and if you are new to Syfe REIT+, there are two main points to highlight.

First, Syfe employs an optimised allocation of only 20 (or fewer) REITs and not a full replication of the iEdge S-REIT Leaders Index. This intentional decision balances and prioritises:

• Index representation (minimizes tracking error)
• Trading liquidity (minimizes trading costs)

Secondly, Syfe’s REIT selection process includes only SGD-denominated REITs with a minimum free float of 20%.

Does Syfe REIT+ methodology mean better returns? Data shows that Syfe REIT+ has been outperforming its benchmark index.

The interesting thing I learnt is that the iEdge S-REIT Leaders index only has 21 constituents as of today. I guess there isn’t much optimization to be done in the future, isn’t there?

If more REITs do not meet Syfe’s criteria, we will have fewer than 20 REITs included in Syfe REIT+.

SGX Website Is Not User-Friendly

To be honest, I don’t think SGX has a user-friendly website at all.

Either information is tough to find, or I am pretty lousy at searching for it because I haven’t seen any updates to the iEdge S-REIT Leaders Index under Index Publications for the last few years.

If we visit the iEdge S-REIT Leaders Index webpage, we also don’t get to view the full list of the current constituents either.

My go-to solution is to refer to the CSOP iEdge S-REIT Leaders Index ETF, which adopts a full replication strategy by constructing its portfolio with the same weightings as the underlying index.

Therefore, we just have to take a look at the holdings of CSOP iEdge S-REIT Leaders Index ETF to know what the current constituents of the iEdge S-REIT Leaders Index are, which has only 22 at the moment.

Digital Core REIT is USD-denominated which equates to exclusion from the Syfe REIT+ portfolio.

Ending Thoughts

According to Syfe, REIT+ (100% REITs) is estimated to offer a dividend yield of around 5.56% p.a currently.

Syfe REIT+ has its ups and downs and will always be subject to interest rate fluctuations.

The good news is that we are at the beginning of a rate-cutting cycle, with interest rates expected to be in the 3.50%-3.75% range by the end of 2025.

When that happens, risk-free returns from options such as high-interest bank accounts, fixed deposits, Singapore Savings Bonds, and cash management solutions will become increasingly unappealing for yield hunters. In comparison, REITs will start to look more attractive.

However, it is important to understand that it will take at least a few quarters for the positive impact of lower rates to start being reflected in REITs’ financial results.

Why is this important for REITs? The answer is obvious – lower interest rates will boost S-REITs’ earnings.

Lower financing costs translate directly into higher earnings growth for REITs. Moreover, the improved debt and capital environment is likely to facilitate acquisition activities, opening additional avenues for earnings expansion.

There is still plenty of time next year when the price of REITs will be subjected to volatility. The euphoria and momentum of the Fed rate pivot (September 2024) have dissipated as investors realize that REITs will still be stuck with the high cost of debt in the near future. Meanwhile, we are getting paid to wait.

At the end of the day, we have to choose our poison and stick to our convictions. Time will take care of the rest.

Syfe Referral Code – Cash Reward & Fee Waivers

If my blog post has helped you decide whether to invest with Syfe, you will be delighted to know that you can use my exclusive referral code (TURTLEINVESTOR) to give your portfolio a head-start as a new Syfe client. Learn more about the Syfe Referral program here.

I earn rewards only when you do, so we share in the benefits together — a win-win for both of us!

Thanks for reading! Do drop me a comment or message if you’ve found this helpful.

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Kevin started Turtle Investor when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for his daily expenses and vacations. You can learn more about Kevin here.