TOKYO -- Japan's top mutual fund by assets will reduce monthly payouts amid a tough year for the U.S.-property-focused vehicle, a popular one for income-seeking older investors.
Fidelity U.S. REIT Fund B had net assets of roughly 1.44 trillion yen ($13.2 billion) as of Friday. That made it the largest among stock investment trusts -- the category it falls under -- excluding exchange-traded funds.
Fidelity Investments Japan will lower the monthly dividend from 100 yen per 10,000 shares to about 70 yen in November, the first cut since 2012. This will lower the fund's annualized dividend yield from 29% to around 20%, based on Monday's net asset value of 4,203 yen.
Mutual funds investing in overseas real estate investment trusts typically distribute money to investors each month. They have become popular among yield-focused older investors seeking a regular income stream to help make ends meet.
But these funds are struggling to make money. Higher U.S. long-term interest rates make borrowing more expensive for REITs, and the yen's appreciation in the first half of this year has served as a headwind as well. A benchmark U.S. REIT index has fallen more than 10% in yen terms since the end of 2015.
Japan's Financial Services Agency frowns on tapping into capital to pay monthly dividends even when returns are poor, a practice that has become common among big asset management companies competing for customers. Now that Fidelity -- the largest money manager by net assets -- is cutting dividends, other foreign-REIT funds may follow suit.
Funds investing in overseas REITs manage net assets worth 8 trillion yen -- accounting for 10% of the assets in publicly offered mutual funds -- and make up six of Japan's 10 largest funds by assets. Inflows into these funds accelerated after the introduction of negative interest rates, with more than 2.2 trillion yen flooding in between January and October, equivalent to 40% of the total for all stock funds.