REIT mutual funds up 20-25% this year as yield seekers pivot
The prices of mutual funds investing in real estate investment trusts (REITs) and property funds have soared by 20-25% year-to-date as investors have shifted from fixed-income securities funds for higher returns, says a veteran investment expert.
The shift is a response to the US Federal Reserve's rate cut signals, said Win Phromphaet, chief investment officer of Principal Asset Management.
Investors are expected to continue moving from bond investment into property funds and REITs because of the lower rate outlook.
The fundamentals of property funds and REITs are strong and offer attractive, stable dividend yields similar to the rates offered by fundamental stocks, Mr Win said.
"REITs in Thailand have some disadvantages because of a smaller fund size and lower liquidity compared with Singaporean REITs, where fund size and liquidity are higher," he said. "Lower liquidity could induce more drastic price movements, meaning there could be a large price rise on the back of less supply, but it would also drop sharply if there is negative market sentiment."
REITs and property funds offered attractive returns during the past 10 years, with an average gain of 10%, with 5% from dividends and 5% from capital gains, according to Mr Win.
"Looking into the next five years, dividends should remain at 4-5%, but the gain in price is not expected to outperform those seen in the past," he said.
Mr Win suggested including property funds in a general investment portfolio to cushion against bearish sentiments and sporadic downtrends in other asset classes.
Equities saw dismal returns last year, while debt securities offered subdued yields. On the other hand, property funds generated more than a 3% return.
"Equities are performing better this year and returns from bonds are still above 1%," Mr Win said. "But REITs and property funds offer more than 20% returns and generate higher dividends compared with equities."
Another disadvantage of local REITs is the lack of initial public offerings, with few independent REITs and property funds available.
According to the FIN app that tracks mutual fund performance, 55 mutual funds investing in local or foreign REITs and property funds are available for retail and accredited investors.