In my last article for The Property Chronicle, I gave an overview on:
- The definition REITs (Real Estate Investment Trust)
- The reasons to invest in REITs as an alternative to physical real estate investment
- The Benefit and drawback on investing in REITs
In this article I will discuss Singapore REITs Index.
Investors should understand the overall market sentiment before making an investment decision. One of the basic rules is to avoid investing during market downturns as the stock price can go lower even though it looks cheap and undervalued.
On top of individual REITs counters, retail investors also need to be aware of the Overall Market Sentiment by looking at the Singapore REITs Index. This index is akin to the Straits Time Index (STI) which has 30 component stocks representing the Singapore stock market. There are currently two Singapore REITs indices to represent the Singapore REIT Market, namely the FTSE ST REAL ESTATE INVESTMENT TRUST (FSTAS8670) and SGX S-REIT Index.
FTSE ST REAL ESTATE INVESTMENT TRUST (FSTAS8670) is the most commonly used index as it has the longest history. This FTSE ST REITs Index consists of 31 REITs and Real Estate Business Trusts in Singapore (see Table 1 below).
Chart 2 below shows the FTSE ST Real Estate Investment Trust Index (FTSE ST REIT Index) is trading around the 802 level. The index price is represented by the Blue line. The Green Line is the 200D SMA (200 Day Simple Moving Average), which represents the average of the past 200 Days Index Closing Prices. We can use this long-term trend line (representing one year) to identify the trend. When this 200D SMA line is sloping up, we classify it as an Uptrend. When the 200D SMA is sloping down, we classify as Downtrend. The Index (Blue Line) tends to stay above the 200D SMA (Green Line) when the Index is on an uptrend. If the Index price (Blue Line) goes below the 200D SMA (Green Line), the Index is said to reverse to a downtrend. At 802, the current FTSE ST REITs Index has just started the down trend because it is below the 200D SMA. Investors have to pay attention when this 200D SMA starts sloping down because it is a confirmation of down trend. Retail investors have to be cautious when investing in a down trend because invested capital can shrink if the price goes lower.
As an equity investor, we need to factor in the volatility of the underlying asset instead of just purely looking at the annual return. Based on Table 3 below, FTSE ST REITs Index have better Return / Volatility Ratio (basic Risk Adjusted Return) than FTSE ST Real Estate Index.