Hey savvy investors, welcome back to ‘The Dividend Uncle’! Today, I have a crucial message for all of you who are thinking about, or already investing in, REIT ETFs. This post is not only for those who rely solely on REIT ETFs for passive income and diversification but also for those who, like me, use REIT ETFs as a supplement to their portfolio of individual REITs.

But before you assume this is just another discussion on the pros and cons of REIT ETFs versus individual REITs, let me get straight to the point: after investing in a REIT ETF myself, I uncovered something shocking that made me completely rethink my strategy. I found a better alternative that I’ve since switched to, and in today’s video, I’ll explain exactly why. As always, I’m here to share my mistakes, so you won’t have to make them yourself!

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

My Experience with REIT ETFs

Although I’m heavily invested in individual REITs as part of my broader portfolio, I sometimes worry whether my REIT holdings are truly diversified. Like many of you, I initially turned to REIT ETFs to fill gaps and reduce the effort of selecting individual REITs. With a busy schedule, family commitments, and work, managing a REIT portfolio takes time, so ETFs seemed like the perfect solution, and I invested in the CSOP iEdge S-REIT Leaders ETF.

But the deeper I dug into these REIT ETFs, the more I found certain issues lurking beneath the surface. And now I’ve shifted my REIT ETF investments to what I believe is a better option: Syfe REIT+ Portfolio. Again, I’m not being paid by Syfe.

Let me explain what made me switch.

The Big Problem I have with a REIT ETF: Capital Distribution

Here’s the most surprising thing I found: many REIT ETFs don’t just pay you dividends, they can also give you back part of your capital as “income.” On the surface, these ETFs offer attractive yields, which entices you to invest more into them. But when I looked closer, I realized some of that yield comes from returning your own investment.

This is problematic because when we invest, we expect our money to stay fully invested and generate income, not come back to us disguised as dividends. It creates a false sense of passive income, and your invested amount shrinks over time.

For instance, from the CSOP iEdge S-REIT Leaders ETF’s reports, 14% to 30% of the distributions are capital returns. This means a significant portion of the “income” isn’t coming from REIT performance, it’s just your own money being handed back to you.

Additionally, returning capital reduces the amount you have invested, leaving you with less to benefit from market rallies, like the one we’ve seen over the past two months.

Why I Switched to Syfe REIT+

As I searched for alternatives, I found that Syfe REIT+ Portfolio offers a much cleaner, more efficient way to invest in REITs without these hidden issues.

Syfe REIT+ only distributes dividends earned from the REITs, so your capital remains intact and keeps working for you. It pays out dividends every quarter, unlike the REIT ETFs which distribute only twice a year. Getting your money earlier allows you to reinvest it sooner and maximize your returns. In addition, dividends from Syfe REIT+ can be reinvested automatically at no cost. This helps compound your returns over time.

Now, the performance speaks for itself. Syfe REIT+ has consistently outperformed the C SOP iEdge S-REIT Leaders ETF over the past few years, through both good and bad markets.

I also found a few additional benefits of Syfe REIT+ over the REIT ETF, which I will quickly run through with you.

1. Lower Management Fees

REIT ETFs charge between 0.6% to 0.9% in fees. Syfe REIT+ fees range from 0.25% to 0.65%, depending on how much you invest, making it just as competitive, or even cheaper, than ETFs.

2. No Brokerage Fees

When you buy REIT ETFs on the stock exchange, you’ll pay brokerage fees, often at least $25 per trade. This makes it difficult to dollar-cost average with small amounts. With Syfe, there are no brokerage fees, so you can invest regularly without worrying about costs.

3. Stricter Selection Criteria

Syfe REIT+ builds on the iEdge S-REIT Index but applies additional filters, such as including only SGD-denominated REITs and requiring stricter liquidity criteria. This results in a slightly different, but higher-quality, REIT composition.

The Dividend Uncle’s Take

After realizing how REIT ETFs return part of my capital and seeing how Syfe REIT+ performs better, I made the switch, and I wanted to share this with you so you don’t make the same mistake I did. Again, I’m not being paid by Syfe, and this isn’t a promotion. I just want you to have all the facts so you can make informed decisions about your investments.

So, if you’re using REIT ETFs to supplement your individual REITs, or if you’re thinking about starting, take a moment to consider Syfe REIT+ as a better option.

What are your thoughts? Were you aware that REIT ETFs might be returning some of your capital as income? Have you tried Syfe REIT+ or other alternatives? Let me know in the comments!

If you found this post helpful, don’t forget to like the post and subscribe to my website and YouTube channel so you don’t miss out on more content like this. Thanks for watching, and I’ll see you in the next one!

[Post publication updates: Confirmed with Lion-Phillip S-REIT ETF (CLR) that the ETF distributes capital as part of its dividend distributions. Over the past 2 years, between 13% and 41% of the dividend distributions are made up of capital distributions. You can download the “Dividend Information” at the bottom of the website here.]