Riding on the trend that Asian real estate investment trusts (Reits) offer some of the highest yields in the world, Nikko Asset Management (Nikko AM) and the Singapore-based Straits Trading Company have jointly launched the first Asia ex-Japan exchange traded fund (ETF) with S$54.4 million (US$38.8 million) in assets under management (AUM).

Known as the NikkoAM-StraitsTrading Asia ex Japan Reit ETF, the new ETF was launched on the Singapore Exchange (SGX) on March 29, with a view to providing investors access to a portfolio of Reits in Asia with exposure to properties in high-growth sectors such as financial hubs, middle class consumption and tourism.

Asia Reits are one of the fastest growing asset classes and offer some of the highest yields in the world. Hong Kong and Singapore-based Reits, in particular, provide strong yields riding on the strong fundamentals of their domestic economies and real estate sectors.

Hong Kong’s Link Reit, the biggest in Asia with about HK$1.96 billion (US$253 million) in assets, posted a 4% yield in 2016 much higher than one-year US treasury yields of almost 0%. The smaller Champion Reit, with HK$705 million in assets, also yielded 5.3% in 2016.

“We see a growing appetite for high-yielding products among investors in the region, particularly those with retirement planning in mind,” says Chew Gek Khim, executive chairman of The Straits Trading.

The NikkoAM-StraitsTrading Asia ex Japan Reit ETF tracks the FTSE EPRA/NAREIT Asia ex Japan Net Total Return REIT index which is comprised of REITs across developed and emerging countries such as Singapore, Hong Kong, China, Malaysia and Indonesia.

Nikko AM and Straits Trading have seeded the ETF with S$42.6 million, ensuring that it is sufficiently capitalized from day one. During the initial offer period, the ETF gathered another S$11.8 million from retail investors. This is the first ETF Nikko AM has launched outside of Japan and the first time an ETF has been launched with an anchor investment of this size on the SGX.

In terms of asset allocation, the ETF will follow the geographic allocation of the Asian Reit Index which is 60.5% invested in Singapore, 23.0% in Hong Kong, 7.7% China, 5.6% Malaysia, and 3.3% Indonesia.

By sector allocation, the Reit will also follow the index which is 44.5% in industrial and office Reits, 39.7% in retail Reits, 9.9% in diversified Reits, 2.2% in residential Reits, 2.1% in hotel and lodgings Reits, and 1.5% in specialty Reits.

Nikko Asset Management will act as the manager of the ETF while SRE Capital Pte Ltd, a subsidiary of The Straits Trading Company Limited, is the Investment Adviser to the Manager in respect of the ETF.

“Our goal is to provide progressive solutions to the global investors we serve. In this strategic partnership with Straits Trading, we create greater access to Asian Reits for investors in the region and globally. Singapore is the natural place to list the ETF given that it is the Reits capital of Asia,” says Takumi Shibata, representative director, president and CEO of Nikko Asset Management, based in Tokyo.