Ask The Experts: Managing Bonds and Currencies Separately for Maximum Return [Part II]
Adam McCabe, Senior Portfolio Manager at Aberdeen Asset Management Asia Limited, explains how the Aberdeen Asian Local Currency Short Duration Bond Fund enhances yield for investors.
Questions:
The fund's portfolio has large active weights in the physical bonds of Malaysia, South Korea and Thailand. Can you briefly explain the rationale behind these investment decisions?
- Primarily to enhance yield of portfolio on a relative value basis
- Remain underweight to 2 markets with unattractive yields - Hong Kong and Singapore
- Overweight in Malaysia, South Korea and Thailand markets due to higher yields
- From a currency perspective, the fund still likes the Singapore dollar (SGD)
- Monetary policy in Singapore is transparent and aims for gradual appreciation of SGD
- Bond exposure is managed separately from currency exposure
The fund has 0% exposure to the physical bonds and currencies of two countries, namely India and Taiwan, as of the fund's January 2012 factsheet. Why is this so?
- Access is an issue for both countries, and many countries in Asia
- India is an appealing market and the team is working to gain further access
- In the case of Taiwan, while access is an issue, yields are low due to excess capital
- Hence, the central bank is not willing to attract foreign capital, resulting in rather high barriers of entry to the Taiwan market
- The fund does not see this as a large constraint on the portfolio as the Taiwan market is not that attractive anyway
What are the reasons for a Singapore-based investor to invest in this fund considering the relative strength of the Singapore dollar?
- While the Singapore dollar is one of the Asian currencies expected to appreciate gradually over time, the SGD can perform very differently from the other Asian currencies
- Local investors should diversify their currency exposure from just the SGD, and into other Asian currencies
- Opportunities in the short duration space is also very limited for Singapore-based investors
- Government bonds with maturity less than 3 years are yielding less than 0.5%
- Local investors can gain additional yield besides diversification by investing in "Shorty"
- The fund currently has a yield of about 3%
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| Broadcast Date |
16 April 2012 |
| Video Duration |
00:08:18 |
| Programme |
Ask The Experts: Managing Bonds and Currencies Separately for Maximum Return [Part II] |
| © Fundsupermart.com |
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