It’s not easy to capture net returns, especially if there are taxes involved. So for a fair LFL comparison, everything will be gross total returns. On that basis, SREITs have outperformed STI over that specific time period
Just because it’s hard doesn’t mean you get to claim gross is a “fair” comparison.
Of course total returns net of all costs are what matter!
In the U.S. markets there are municipal bonds and bond funds, and those are (typically) U.S. federal income tax free. Other investments aren’t, by and large. Yes, it’s “hard” to make that comparison, but financial analyts do it and make the tax adjustments. It can be done.
Has there been significant tax changes to SG corps over this time interval? As far as I know, cap gains and div taxes have been zero since Jesus.
I think there’s been some personal income tax owed on REITs or REIT index funds at least over some of these comparison years. I’m raising the question, and it’s an important one.
Investors in competitive markets must be compensated for costs, including tax costs. That’s why U.S. municipal bonds have lower gross yields than other comparable risk bonds, because they’re U.S. tax favored. That doesn’t mean municipal bonds are “bad”; they’re just more tax efficient, and that calculation is important. The financial markets certainly take that factor into account.
Any other frictional costs you think can be layered in? I’ll try and figure out how to layer it into my study
Well, as another example, investing in the STI has been easy ever since the birth of STI index funds. (When was the first one born?) REIT index funds haven’t been around as long, so the only way you could buy a basket of REITs in Singapore is individually, with higher trading costs and dividend reinvesting costs, of course. That should be modeled, too. Is that hard? Yep, probably, but it’s necessary for a fair comparison.
Investors don’t buy the indexes directly; there are various cost-related filters through which they invest, including these.
One way you
might be able to model this is to take ES3 (that one is easy and has been around a while) and compare it to an actual SREIT index fund. You won’t be able to run that comparison across all the comparison years you might want, but you might be able to extrapolate the tracking errors (from the indices) backward in time to some base date, before these index funds were born. Still a little difficult, but conceptually it should be possible. Then add the tax effects on top of those curves, also difficult but possible.
I’m pretty sure these fair adjustments are going to make the REITs look less attractive than they seem in the gross/index figures, because of higher fund costs and (I suspect) higher taxes, at least historically.
If we didn’t take taxes into account, then nobody would ever invest in Irish-domiciled ETFs. Everybody would run to Wall Street for the much better U.S. listed ETFs — lower management fees, tighter bid-ask spreads, etc. — and buy those. But there is a difference between 15% dividend tax withholding (paid by the fund) and 30% dividend tax withholding (paid by you), except for such things as (icky) gold funds. These details matter.
