Singapore Exchange is partnering with a local fintech startup, Syfe, in order to support its real-estate investment trust (REIT) business.
“Digital wealth management tools are increasing in adoption and we have partnered with Syfe so that more investors can access and manage their wealth in a more transparent way,” said Simon Karaban, head of index services at SGX.
Since last year, SGX has made investments with fintech companies, including taking a stake in another local startup, Smartkarma, a platform for securities research. It has pursued digital initiatives in areas such as blockchain-based securities settlement.
And in the REIT space it has more traditional partnerships with ETF issuers across various markets through which retail investors can access index exposure to the sector.
Getting it REIT
This is the first time the exchange has partnered with a digital wealth manager, however. Specifically, it is hoping to attract investors to its listed REITS via its “iEdge” series of indexes.
A REIT is a collective investment scheme that aims to deliver a source of recurrent income to investors through focused investment in a portfolio of income-generating properties such as shopping malls, offices, hotels and service apartments. It’s an equity product that has fixed-income like characteristics because taxable income is harvested in the form of dividends.
Syfe has launched a portfolio that allows users to track the iEdge S-Reit 20 Index which consists of the 20 most liquid REITS out of the 44 listed in Singapore (33 pure REITS and several other similar structures).
The fintech launched last year and has a Capital Markets Services license from the Monetary Authority of Singapore. Like many digital wealth managers, its inaugural product was U.S.-listed ETFs, because the U.S. market is the largest and most diverse; it is difficult to build a diversified portfolio just from Asia-listed exchange-traded funds.
Keeping it local
SGX and MAS however are trying to promote locally domiciled ETFs and other passive income-generating products, such as REITs, which offer relatively high dividends that yield 4% to 6% on an annualized basis, at least before this year’s market crash.
In order to boost the attractiveness of S-REITs (as the local varietal is called), Syfe is offering fractionalized ownership, something only possible with a digital platform, says Dhruv Arora, founder and CEO. Similarly it makes it affordable for retail investors to continually reinvest without incurring additional fees, unlike at a bank. “Technology allows us to make this available to smaller investors,” Arora said.
The firm is offering two portfolios: a pure equities exposure to the underlying REIT index, or a hedged version commingled with a portfolio of government bonds.
“SGX’s goal is to improve the accessibility of the S-REIT market in a diversified way through a transparent and well-governed index,” added Karaban.
Pre- and post-pandemic
Until Covid-19 upended markets, REITs were a good performer in Singapore. In 2019, the sector contributed to 24% of the stock market’s overall daily turnover despite being only 12% of market cap. The trusts generated average total returns of 23% last year and paid an average 6% yield – compared to the overall Straits Times Index returning only 9.4%
REITs have been hit hard this year, however, due to heavy exposure to hotels and other types of properties vulnerable to the Great Lockdown. Across Asia Pacific, REITs fell by 28.7% in the first quarter of 2020, versus a 19.2% drop in the region’s major stock markets.
Singapore is a smaller player in the region. As of the end of 2019, S-REITs were valued at about $70 billion, behind the $134 billion market in Japan and Australia’s $98 billion industry. And while Hong Kong is the smallest of the region’s top-four markets, at only $41 billion, it boasts Asia-Pacific’s single biggest name, Link REIT, which stood at $23 billion.
Moreover among the top 10 biggest REITs in the region, only one is in Singapore. The Lion City’s haul of REITS is therefore mostly fragmented, small, and not very liquid.
In this context, SGX’s partnership with Syfe can be seen as a way to tap fintech innovators to generate new ways for local investors to access S-REITs. It is also validation for a startup that’s only been live for a year.
Arora, a former ETF trader at UBS (also with experience building an Indian consumer tech company called Grofers), says the tie-up with SGX is meant to be the first move to working with other financial institutions.
Today Syfe is pure B2C but he expects to grow B2B and B2B2C models with wealth-management arms of banks and other financial institutions. “Many institutions lack an all-encompassing risk-managed solution,” he said. “They tend to focus on satellite products [that is, specialized portfolios to generate outperformance] but we can provide them with the core portfolio solution.”
He declined to quantify the business’s metrics, such as number of users or assets under management.