Syfe backtested REITs portfolio show negative returns every 1 or 2 years when looking at the annual yield. What does this say about the REITs and is there an explanation for such a trend? - Seedly
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Christabel Tan

Asked on 04 Jul 2020

Syfe backtested REITs portfolio show negative returns every 1 or 2 years when looking at the annual yield. What does this say about the REITs and is there an explanation for such a trend?

Hello, I wanted to attach the image of the graph from syfe website but it's not possible. So let me try to explain verbally what I'm referring to. There's a graph showing the performance of Syfe reits from 2011 to 2019 under the past performance section in https://www.syfe.com/reit-plus. Every 1 or 2 years, there's negative returns. Why is this so?

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Tan Wei Ming
Tan Wei Ming, Writer at Frugal Youth Invests
Top Contributor

Top Contributor (Jul)

Level 7. Grand Master
Answered on 05 Jul 2020

Having been in the market for 2018 and 2019, I can only share with you what really happened to REITs in the above mentioned year.

Before starting, I have to share with you the relationship between REITs performance and interest rate. The relationship is inverse because REITs are borrowers so their share price tend to do well when interest rate is low.

In early 2018, if I remember correctly, Federal Reserve wanted to increase or maintain the high interest rate of about 2-2.5% but it changed its stance in the later part of the year to slowly reduce the interest rate.

2019 was a bull year for REITs as it was the year where Federal Reserve starts to reduce its interest rate steadily, this is a good news for REITs with floating rate loan as this means that they will pay less interest expense.

One also has to take note of the risk premium between risk free rate and dividend yield of REIT. One, REIT's dividend yield has to be adjusted lower in view of the low interest rate. There's inverse relationship between share price and dividend yield. So if dividend yield is lower, share price has to increase thus the returns you see in 2019.

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Frankie Rappaport
Frankie Rappaport
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Top Contributor (Jul)

Level 9. God of Wisdom
Answered on 04 Jul 2020

1-2 years is not a sufficient observation period (5-10 years are needed) and

possibly the Covid-crisis diluted the performance?

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