China Fund News reporter Li Shuchao
As an important incremental fund in the REITs market, the public FOF has included REITs in the investment scope, and the holding scale has risen for three consecutive quarters, and the market value of REITs held by the latest public FOF has been close to 44 million yuan, an increase of 36% from the previous quarter; At present, nearly sixty percent of public FOF will include REITs in the investment scope, an increase of 5.6 percentage points from the beginning of the year.
Interviewees and individuals said that from the perspectives of asset cost performance, policy side, asset supply side, etc., public REITs, as high-dividend and high-quality assets, have a high allocation cost performance, and are attracting more diversified investors to participate in investment. With the continuous development of the mainland's "stable growth" policy, the fundamentals of public REITs are expected to be further repaired, and the investment value of such assets is still worth paying attention to.
The market value of REITs held by public FOF is nearly 44 million yuan, which has risen for three consecutive quarters
According to data from the research department of CICC, as of the end of the first quarter of this year, the fair value of public REITs held by public FOF was 43.65 million yuan, an increase of 36% from the previous quarter. The number of fund companies holding public REITs has increased from 5 in the second half of 2023 to 9, of which China Universal and China Merchants Fund account for nearly 90% of their holdings, and the number of public FOF products participating has increased from 12 to 29.
Figure 1: List of the total market value of REITs held by public FOF in the past three quarters
Figure 2: REITs held by fund companies in 2024Q1
Wind data shows that as of May 10, there were 291 public FOF in the whole market that included public REITs in the investment scope (shares are calculated together), accounting for 58% of all products, an increase of 5.6 percentage points from the end of last year.
Talking about the phenomenon of public FOF increasing investment in the REITs market, Lei Min, deputy director of the asset allocation and FOF investment department of China Merchants Fund, analyzed, firstly, from the perspective of asset cost performance, the REITs market has experienced a sharp decline in 2023, and the price has a strong attractiveness at the beginning of the year, superimposed on factors such as "asset shortage" and the continuous decline in bond interest rates, as a high-dividend high-quality asset with high allocation cost performance; Secondly, from a policy perspective, in February this year, the China Securities Regulatory Commission issued the Guidelines for the Application of Regulatory Rules - Accounting No. 4, which clarified the equity attributes of REITs assets, which is expected to bring medium and long-term incremental funds to the market. Finally, from the perspective of asset supply, public FOF to participate in related fund investment requires the fund variety to meet the requirements of a certain number of years of establishment, and with the continuous development of the public REITs market, the number of targets that meet the investment requirements is gradually increasing, and the investable space is also gradually increasing. Wells Fargo Fund agrees with the above views and adds that the current investment and financing policies of the REITs market are jointly promoted: on the investment side, it is planned to include REITs in the Shanghai-Shenzhen-Hong Kong Stock Connect; On the financing side, we supported the issuance of new infrastructure such as new infrastructure and data centers, as well as scientific and technological innovation industrial parks, which broadened the source of incremental funds. Liu Liyu, Executive Director of the Innovation and Investment Department of CICC Fund, also believes that as one of the new categories of financial innovation products and asset allocation, public REITs have the characteristics of low investment threshold, strong liquidity, good diversification effect, high statutory dividend ratio, etc., and have good long-term allocation value, which is attracting more diversified investors to participate in investment.
According to Liu Liyu's analysis, the market price of public RETIs will undergo a significant adjustment in 2023, and the decline in the risk-free rate of return will help enhance the asset allocation value of REITs characterized by high dividends. On the other hand, the REITs market to promote investor protection and value creation has become a consensus of concern to regulators and industry parties, which is also conducive to the long-term development of public REITs products.
It is reported that as early as July 2023, a number of public FOF have included REITs in their investment scope, and FOF has also officially opened public REITs investment.
There is still a lot of room for growth in public FOF investment REITs
Interviewees and individuals said that with the entry of professional institutional investors, it will effectively improve the efficiency of the REITs market, optimize the investor structure, and promote market stability, and the investment targets of public FOF will also be more abundant.
Liu Liyu said that the public FOF is an important participant in the investment field and is composed of professional institutional investors. On the one hand, FOF's participation in the investment of public REITs means that such innovative financial products are more recognized by mainstream investment institutions, and on the other hand, it is expected that the participation of professional institutions can improve the effectiveness and liquidity of secondary market pricing, and promote the gradual improvement and long-term healthy development of the REITs market ecosystem by improving the value discovery ability of the market.
According to Lei Min's analysis, first, the entry of professional institutional investors will help improve the liquidity of the REITs market, reduce transaction costs, improve market efficiency, and attract more investors to participate. Second, professional institutional investors can better understand the characteristics of REITs products and make more rational investment decisions, which will contribute to the healthy development of the REITs market. Third, professional institutional investors usually have stronger risk identification capabilities and a sound risk management system, which can better respond to market fluctuations and risk events, help guide the market to form a reasonable valuation and pricing mechanism, and promote the further development and improvement of the market.
Wells Fargo Fund also said that REITs are a good investment option for public FOF, which can not only diversify risks, but also enhance the diversification of investment strategies. For public REITs, the entry of professional institutional investors will help improve the price discovery mechanism of REITs, thereby reducing the irrational volatility of REITs, and at the same time, it can also boost market confidence, attract more funds to enter the market, and improve the liquidity of the REITs market.
Liu Liyu believes that public REITs have higher liquidity, lower transaction costs and lower investment thresholds than direct real estate investment. Referring to overseas mature markets, long-term capital such as public funds, pensions, enterprise annuities, and insurance funds are the main investors in public REITs.
"The mainland public REITs market is in the pilot stage, and there is still a lot of room for development, which can provide diversified asset allocation opportunities for wealth management of institutions and residents in the future." Liu Liyu said.
After falling by 23% in 2023, as of May 10, the CSI REITs (closing) all-return index has risen by 10.1% since 2024, surpassing the performance of the Shanghai Composite Index of 6.04% and the China Bond-Total Wealth (Total) Index of 2.5% in the same period.
"In the long run, the income of public REITs mainly comes from the operating income of the project and the appreciation of assets, and with the policy efforts to 'stabilize growth' and the market sentiment to pick up, the fundamentals of public REITs are also expected to usher in further repair." Wells Fargo Fund related people said.
Editor: Captain
Review: Xu Wen