Understanding The Fund: LionGlobal Asia Bond Fund
Veronica Ng, Fund Manager at Lion Global Investors, shares her outlook for the Asian fixed income market as well as the investment opportunities identified by the LionGlobal Asia Bond Fund.
Within fixed income, where do you think are the best opportunities right now for investors seeking meaningful returns?
- Value in corporate bonds compared to government bonds which are trading at historically low levels
- Within corporate bond space, greater value in Asian issues which offer high pick-up compared to US or European issues
The LionGlobal Asia Bond Fund has done pretty well in 2012, achieving more than 7% returns year-to-date. Can you tell us more about the fundâs investment philosophy and strategy?
- The fund invests in corporate bonds so the key strategy is credit selection which is a bottom-up process
- Involves in-depth analysis of companies including understanding the management, business model, and past track record in terms of cash flow generation
- Fund seeks undervalued credits that can provide capital appreciation opportunities
- Bottom-up process is combined with top-down approach which involves the evaluation of macroeconomic fundamentals and valuations
- Portfolio returns are also enhanced through tactical allocation in currency
What has been driving the performance of the LionGlobal Asia Bond Fund?
- Asian bond market has been trading off technicals in this low interest rate environment
- Asian corporate issues have, on average, coupon rates of 4.5 to 5% per annum
- Outperformance of fund is due to capital appreciation which has been achieved through interest rates moving lower, and good demand for corporate bonds
Within Asia, are there any countries or sectors the fund is positive on?
- Fund is positive on crossover credits, short dated high yield corporate papers and Hong Kong corporate issues
- Crossover credits are companies with split credit ratings; ratings agencies not agreeing on the quality and hence giving different ratings for the same issue
- Such issues offer attractive pick-up over pure investment grade issues with potential for capital appreciation when they get upgraded to full investment grade quality
- Fund is also positive on selective high yield corporate papers with short maturity, approximately 2 to 3 years
- In first quarter of 2012, Hong Kong corporates tapped the market aggressively due to tight USD liquidity on shore
- The sector has done well and at current prices, still offers value for investors and hence the fund is also overweight in this sector
On the other hand, are there any investment ideas the fund is underweight in?
- Cautious on India
- Market rumours of a potential downgrade in Indiaâs sovereign debt from investment grade to high yield has been gaining momentum
- Rating agencies have put their rating outlook on Indiaâs debt to negative due to macroeconomic concerns such as its fiscal deficit, widening current account and high inflation rates
- Indian rupee has also depreciated 25% against the USD
- Debt issued by both the Indian government and corporations have underperformed their peers
- Fund will be looking out for reform policies to be put in place that will keep a lid on inflation and promote stable growth before changing its cautious stance
||08 August 2012
||Understanding The Fund: LionGlobal Asia Bond Fund