• Since inception, S-REITs have typically been sought for investability traits including yield and stability. However, tighter financial conditions and a fluid outlook for these conditions has provided more tradability to the Sector. Since the end of 2022, the iEdge S-REIT Leaders Index averaged +/- 0.6% daily returns, and 1.1% daily trading ranges.

• The iEdge S-REIT Leaders Index is tradable through Futures Contracts, with a contract multiplier of S$25. Based on an Index value of 1,000, this provides S$25,000 notional exposure to the Index, per contract. The contracts are traded on nearest 2 serial months and a quarterly cycle of March, June, Sep and Dec, with expiries on the second last Singapore business day of each quarter.

• The iEdge S-REIT Leaders Index has declined 12.3% in the 2024 YTD, from 1,164 to 1,021. This has coincided with an outlook of tight financial conditions for longer, and expectations for the quantum of Fed Funds Rate cuts by end of 1H25 curtailed to ~50bps or 75bps, down from ~175bps.

• Going forward, potential resilience of REITs could provide both investability and tradability. In the recent US earnings run, two US REITs beat estimates for every one that missed. This helped support the performance of US REIT Indices with 7% gains from 16 April to 15 May, after which the Indices were again weighed by hawkish rate expectations.

In the 2024 year through to May 29, the iEdge S-REIT Leaders Index declined 12.3%, with reinvested distributions reducing the decline in total return to 9.5%. The iEdge S-REIT Leaders Index also maintained a trailing 12-month distribution yield of 6.5% as of the end of April.

The 22 constituents of the Index have generated total returns that varied from 1.3% for AIMS APAC REIT to a 25.2% decline for CapitaLand China Trust. Over the period, the 22 constituents booked just over S$790 million of combined net institutional outflow, with Digital Core REIT, Frasers Centrepoint Trust and ESR-LOGOS REIT bucking that trend and booking net institutional inflow.

The iEdge S-REIT Leaders Index has maintained a significant 0.98 correlation to the FTSE ST REIT Index and 0.99 correlation to the iEdge S-REIT Index since the end of 2022. As illustrated in the chart below, there has also been a directional correlation to the outlook for the US Federal Funds Rate.

Paralleling the importance of US interest rates and the US Dollar on the global economy, US REITs have a significant impact on the global REIT market, with US-listed REITs comprising 70% of the weights of the FTSE EPRA Nareit Global Real Estate Index.

Source: SGX, CME Group

The expected Fed Fund Rates for July 2024 and March 2025 are calculated by subtracting the respective prices of the CME Federal Fund Futures for the months of July 2024 (FFN4) and March 2025 (FFH5), from 100. Thus as of 29 May, the FFN4 contract is suggesting that at the end of July, the Fed Funds Rate is expected by the market to be 5.33% (100 - 94.67), which is within the current band of 5.25% to 5.50%. Back on 10 January, the FFN4 pricing indicated expectations the Fed Funds Rate would be 4.50% by the end of July.

Recent REIT performances have also been impacted by other factors, such as proactive capital management, utility costs, exchange rates, property valuations and earnings. For instance, the 1Q24 earnings season in the United States saw two US REITs beat estimates for every one that missed. This helped support the performance of US REIT Indices with 7% gains in US$ terms from 16 April to 15 May.

As illustrated in the chart above, rate expectations by the end of 1H25 have since turned more hawkish, with the FFH5 contact declining from 95.345 (i.e. 4.655% ) to 95.095 (i.e. 4.905%). This indicates current expectations of at least 50bps, possibly 75bps in cuts from the current band before the end of March 2025.

SGX iEdge S-REIT Leaders Index Futures

As noted above, the iEdge S-REIT Leaders Index has declined 12.3% in the 2024 YTD. This has seen the Index decline from 1,164 to 1,021. At the same time, the March 2024 SGX iEdge S-REIT Leaders Index Futures Contract declined 8.0% from 1,149.0 at the end of 2023 to 1,056.6 on 27 March, with June 2024 SGX iEdge S-REIT Leaders Index Futures Contract declining 3.1% from 1,056.6 on 27 March through to 1,024.2 on 29 May.

SGX iEdge S-REIT Leaders Index Futures Contracts maintain a contract multiplier of S$25. This means one contract with a price of 1,024.2 provides exposure to the price performance of a portfolio for S-REITs valued at S$25,605. The portfolio per se comprises of the Index which tracks the price performances of its weighted constituents (see table below).

Note the Futures Contracts do not pay distributions, and thus their theoretical pricing will be lower for the months when Index heavyweights have ex-dates with distributions, than those months that have no distributions.

The SGX iEdge S-REIT Leaders Index Futures Contracts are traded on nearest two serial months and a quarterly cycle of March, June, September, and December, with expiries on the second last Singapore business day of each quarter.

Thus a 1 lot Short position in the March 2024 SGX iEdge S-REIT Leaders Index Futures Contract that spanned the close on 29 Dec 2023, to the 27 March close would have returned 92.4 points (1,149.0 - 1,056.6) or S$2,310 (S$25.0 per 1.0 point). Another Short position in the June contract from 27 March to 29 May would have returned 32.4 points or S$810 per contract. Note this was on a Short position. If a Long position was taken at those prices, the losses would have been of the same magnitude.

Also note Futures Contracts are SIP and leveraged, with margin schedules available here. The present initial margin requirement for a Long or Short position with 1 lot in the SGX iEdge S-REIT Leaders Index Futures Contract is S$990. As noted above, the equivalent portfolio exposure, assuming the current Index level of 1,024.2, is S$25,605.

Note that while the SGX iEdge S-REIT Leaders Index Futures Contracts are presently not actively traded, they are supported by market makers.

iEdge S-REIT Leaders Index Has Averaged 1% High-to-Low Moves Since end-2022

The iEdge S-REIT Leaders Index is the most liquid representation of the S-REIT market in Singapore. It is an adjusted free-float market capitalisation weighted index that measures the performance of the largest and most tradable REITs in Singapore. More information on the Index can be found here.

Since the end of 2022, the iEdge S-REIT Leaders Index averaged absolute daily price changes of +/- 0.6%. Moreover the average daily trading range over the period was 1.1%. While this has coincided with much focus on the outlook for interest rates and inflation data, more focus on growth-related data, particularly in the United States, is expected to maintain the fluid market outlooks.

The recent performances of iEdge S-REIT Leaders Index's 22 constituents are tabled below.

Source: SGX, Refinitiv, Bloomberg (Data as of 29 May 2024).