To The Moon

👨‍🏫Renown trading representative Dan Chang shares his thoughts on how an investor’s traditional mindset on using a SREITS ETF for passive income can now be turned into an active opportunity by using the newly listed structured warrant tracking the ETF.

🔎He presents the short-term trading opportunities by analysing the chart of the ETF, and mentions the key levels for interested investors to consider:

*Dan's view does not represent that of Macquarie's

A Structured Warrant... on a REIT ETF?

I have to admit, I had to read the announcement twice. Not because I couldn't understand it, but because it challenged how I had always thought about these two investment products.

For many investors, buying a REIT is almost a mindset. You invest for the potential distributions, hold it patiently, and let time do the heavy lifting. Structured Warrants, on the other hand, are often associated with something entirely different. They are typically used by investors looking to express a shorter-term market view with leverage.

One is about patience. The other is about timing. So when I saw that Macquarie Warrants had launched a Structured Warrant on the Lion-Phillip S-REIT ETF, I didn't just see a new product.

I saw two investing worlds collide.

Perhaps the story isn't about the product itself. It's about how investing continues to evolve.

When Time Horizons Collide

At first glance, it almost feels counterintuitive. After all, REITs have traditionally been regarded as one of the market's classic buy-and-hold investments. Investors spend time evaluating fundamentals, occupancy rates, rental reversions, asset enhancement initiatives and distributions, then patiently hold through market cycles.

Structured Warrants, on the other hand, serve a very different purpose. Rather than collecting distributions over the years, they allow investors to express a shorter-term bullish or bearish view on price movements, amplified through leverage.

One is often measured in years. The other, sometimes in days or even weeks. So why would anyone combine these two seemingly opposite investment approaches?

The more I thought about it, the more I realised this launch wasn't trying to change what REITs are. It was simply giving investors another way to express their view on the REIT sector. ​​​​​​​

From Passive Income to Active Opportunities

So why would anyone want to trade a REIT?At first, it does sound a little unusual. After all, REITs have long been associated with steady distributions and long-term investing. But while the investment thesis may be measured in years, market movements are not.

There are periods when investors develop a shorter-term view on the entire REIT sector. Interest rate expectations may change. Bond yields could move sharply. Central banks may surprise the market. Or perhaps valuations have become compelling enough that investors believe the sector is due for a rebound. In situations like these, investors aren't necessarily trying to predict which individual REIT will perform best. Instead, they may simply have a view on the sector as a whole.

Until now, expressing that view hasn't always been straightforward. Buying individual REITs means taking on company-specific risks, whether it's a weaker set of results, an unexpected acquisition or refinancing concerns. Your investment outcome is no longer driven solely by your view on the sector.

This is where a REIT ETF becomes interesting.

Rather than taking a view on a single REIT, investors can express a view on the broader REIT market. And with the introduction of Structured Warrants on a REIT ETF, investors who have a shorter-term outlook now have another instrument to reflect that view.

To me, that's the real significance of this launch.

It's not about turning REIT investing into a short-term activity. It's about recognising that even traditionally long-term asset classes can present shorter-term opportunities, and giving investors another way to participate when they believe those opportunities exist.

What Does the Chart Say?

Before we discuss the Structured Warrant itself, I would like to highlight an important principle.

When analysing a Structured Warrant, always begin with the underlying asset, not the warrant itself.

The reason is simple. A Structured Warrant derives its value from the underlying. If I can't form a view on where the underlying could be heading, there is little basis for analysing the instrument built on top of it. In other words, the investment thesis comes first. The instrument comes second.With that in mind, let's turn our attention to the Lion-Phillip S-REIT ETF.

Before looking at the chart, one point is worth highlighting. The ETF has just traded ex-dividend (XD), distributing 2.30 cents per unit on 30 July 2026. As such, the corresponding price adjustment should not be interpreted as a deterioration in the technical picture, but rather as a normal consequence of the distribution.

Looking beyond the ex-dividend adjustment, the overall technical picture remains constructive.

The ETF continues to trade above its 50-day moving average (50MA), while the 10MA remains above the 50MA, suggesting that short-term momentum is still improving. Although the ETF is trading around its 200MA, that level continues to represent an important area of longer-term resistance which investors should monitor closely.

The price action also looks constructive. Over the past few weeks, the ETF has been forming a series of higher highs and higher lows, indicating that buyers have gradually regained control following the sharp sell-off earlier this year.

More importantly, the recent recovery has developed into what resembles an ascending triangle (barring the XD effect), with rising lows converging towards a relatively flat resistance area. This is generally regarded as a constructive continuation pattern, although confirmation would only come with a decisive breakout above resistance, ideally accompanied by stronger trading volume.

The recovery also continues to resemble the early stages of a potential W-shaped (double bottom) formation. While the pattern has yet to be fully confirmed, it suggests that the ETF may be in the process of establishing a medium-term base.

Volume has also been encouraging. Trading activity picked up as the ETF challenged resistance, suggesting improving participation from buyers. Going forward, I would continue watching whether any subsequent breakout is accompanied by similarly healthy volume, as stronger participation would provide greater confidence that the move is sustainable.

From a technical perspective, the recent swing high around 86.6 cents remains the next area of resistance to watch. A convincing move above that level would further reinforce the improving technical picture and could pave the way for a retest of the previous highs around 89.5 cents.

Overall, I would describe the technical outlook as constructively bullish. The trend has improved, momentum remains positive, and the price structure continues to strengthen despite the mechanical ex-dividend adjustment.Whether readers agree with my technical view is ultimately less important than understanding the principle behind it.

The investment thesis should come first. The instrument comes second.

How Does the Structured Warrant Come Into Play?

Investors who wish to be exposed to potential short term upside moves in the Lion-Phillip S-REIT ETF can consider using a call warrant to magnify the share price return using lesser capital compared to a direct ETF investment and without the risk of margin calls.

There is currently only SREIT ETF call warrant LION-PHILLIP MBeCW261229 (JHFW) – newly listed on 17 July and quoted on tight spreads and high liquidity.

Macquarie has a tool known as the Exposure Simulator (https://warrants.com.sg/tools/exposuresimulator/JHFW) to help investors estimate their investment and returns with warrants versus the underlying share/ETF, as well as the maximum holding period if one were to purchase the warrant.

Exposure Simulator: type in number of shares you would buy to see the equivalent amount of warrant investment in chosen warrant to achieve the same level of stock exposure:

Using the example of an investor who is keen to buy into the ETF now with an upside target of $0.866. The investor will have to spend $16,400 (before trading costs) assuming he/she were to buy 20,000 units of the ETF at say, $0.82 on 3 Aug. However, if the same investor were to use the ETF call warrant JHFW to participate in the ETF’s price upside from $0.82 (price at the point of writing the article at 130PM on 3 Aug), the investor will need only to invest $1,577 to buy ~54,400 units of warrant JHFW at $0.029 on 3 August to achieve a similar level of exposure.

This is because, JHFW has an effective gearing level of 10.4 times and will move approximately 10.4 times more than the SREITS ETF (based on the ETF trading at $0.82 on 3 August). 

Entering the target exit level of the next resistance of $0.866 under the “Share price” column under the “Simulated breakeven” section, which is 5.6% higher than the ETF entry price of $0.82, and moving the number of days the warrant is held to say 25 days later, you will observe that the warrant will now increase by 10.5 times i.e. +58.6% which translates into a projected absolute dollar gain of $924 versus the $920 dollar gain if one were to buy 20,000 units of the SREITS ETF instead (assuming all pricing factors remain constant).

Exposure Simulator: type in the target exit/profit-taking level and increase the number of days held to simulate the expected returns on the warrant versus holding the SREITS ETF:

The longer the ETF takes to rise to the target $0.866 exit level from the $0.82 entry price, the more the warrant holding cost will set in to erode the geared return of the warrant. For example, if the ETF took 65 days instead to reach $0.866, the call warrant will now only increase 24.1%, with an absolute dollar gain of $381, less than if one were to hold onto the ETF, although the percentage gain is still around 4.3 times more: 

To know how long one can hold onto warrant JHFW for based on the $0.866 exit level, increase the holding period to the point where the warrant no longer makes geared returns versus the ETF  i.e. 90 days from the entry date of 3 August, where the warrant will see no gain compared to ETF’s 5.6% gain. If the ETF is trading less than $0.866 in 90 days, a warrant investor who bought this warrant should consider cutting his/her losses anyway.Warrants will see lower geared returns with longer holding periods. Increase the holding period to see the maximum holding period one should hold onto the warrant for:

​​​​​​​​​​​​​​Investors should note that leverage works both ways. Whilst warrants can be used to magnify one’s exposure and potential gains from favorable price moves in the underlying shares, losses can also be magnified when the price moves against the investor. 

Additionally, using the call warrant will only allow you to participate in the ETF’s directional move, and is not equivalent to investing and holding the ETF directly. For example, holders of the call warrant will not receive coupons/capital return as these have been priced into the warrant i.e. the warrant will not fall if the ETF were to fall by the ex-coupon/capital return amount on ex-div dates.

Diversification... with Leverage?

One aspect I find particularly interesting about this launch is that it brings together two concepts that don't often appear in the same sentence: diversification and leverage.

Traditionally, investors turn to ETFs for diversification. Rather than relying on the fortunes of a single company, an ETF spreads exposure across a basket of securities. In the case of the Lion-Phillip S-REIT ETF, that means gaining exposure to Singapore's listed REIT sector through a single investment.

Structured Warrants, on the other hand, are designed for a different purpose. They allow investors to gain leveraged exposure to an underlying asset, meaning a relatively smaller capital outlay can potentially result in a larger gain if the market moves in the anticipated direction.

When these two ideas come together, investors are no longer taking leveraged exposure to just one REIT. Instead, they're taking a leveraged view on an entire sector.

To me, that's an interesting evolution.

For investors who have a constructive view on Singapore REITs as a whole, but don't necessarily want to decide whether CapitaLand Integrated Commercial Trust might outperform Frasers Centrepoint Trust, or whether Mapletree Logistics Trust might do better than Keppel DC REIT, a REIT ETF offers a way to express that broader sector view. A Structured Warrant simply introduces another dimension by allowing investors to do so with leverage.

Leverage can be a powerful tool, but it also changes the risk-reward profile of an investment. And that's something every investor should understand before deciding whether it is suitable for them.

Understanding the Trade-Offs

While the introduction of Structured Warrants on a REIT ETF opens up new possibilities, it's equally important to recognise that they are not suitable for every investor or every situation.

Unlike the underlying ETF, Structured Warrants have a finite lifespan. This means timing matters. Even if your longer-term view eventually proves correct, a warrant may still lose value or even expire worthless if the anticipated price movement does not occur before expiry. Investors should also be aware of time decay. As a Structured Warrant approaches its expiry date, its time value gradually erodes. In other words, time itself becomes another factor working against the investor.

Leverage is another important consideration. While it has the potential to amplify gains, it can equally magnify losses when the underlying moves against your expectations. This is why risk management becomes even more important when using leveraged instruments.

For me, this brings us back to a principle I mentioned earlier in this article.

The investment thesis should come first. The instrument comes second.

If an investor's primary objective is to generate long-term income from REITs, buying and holding the ETF may well be the more appropriate approach. On the other hand, if an investor has developed a clear, shorter-term market view, understands how Structured Warrants work, and is comfortable with the associated risks, then a Structured Warrant may offer another way to express that view. 

Ultimately, Structured Warrants should not be viewed as a shortcut to higher returns. They are simply another tool in an investor's toolkit. Like any financial instrument, they are most effective when used with a clear objective, a well-defined risk management plan, and a thorough understanding of how they work.

More Than Just a New Product

When I first came across the announcement, I found myself wondering why anyone would combine a Structured Warrant with a REIT ETF. In the end, I realised this isn't really about combining two seemingly different investment products.

It's about recognising that investors don't all have the same objectives, the same time horizons, or the same ways of expressing a market view. Some investors will continue to hold REITs for years, collecting distributions along the way. Others may develop shorter-term views as interest rates, valuations and market sentiment evolve. 

Neither approach is inherently better. They simply serve different purposes. 

This launch is also part of a broader initiative to expand the range of Structured Warrants available on ETFs listed on SGX. Besides the Lion-Phillip S-REIT ETF featured in this article, investors can now also access Structured Warrants on the Amova STI ETF and the SPDR Gold Shares ETF (USD). Each offers exposure to a different asset class and investment theme, giving investors even more ways to express their market views.

To me, that's what makes this launch interesting.

It's not about changing how we invest. It's about giving investors more ways to invest.

Disclosure:

At the time of publishing, the author has no vested interest in the above-mentioned SDRs nor its underlying stocks.

Refer to Dan's original article here for disclaimers and warning: https://www.linkedin.com/pulse/when-passive-income-meets-active-trading-dan-chang-c-s-%E5%BC%A0%E7%88%B5%E5%85%B4--4yysc?utm_source=share&utm_medium=member_ios&utm_campaign=share_via