- Local Currency Asian Bonds
- Active management based on quarterly investment views
- Managed from SGD perspective
The fund offers exposure to the Asian Local Currency debt market, and is invested largely in sovereign bonds, with 74.0% of the portfolio in government debt securities. The fund's benchmark, the HSBC Asian Local Bond Index, reflects the fund's mandate to invest in local-currency denominated debt, rather than the hard currency (USD denominated) Asian bond space.
The fund offers investors a means to participate in the growth of the local currency Asian bond market which has become increasingly popular with investors in recent years; the portfolio's yield-to-call of 4.16% (excluding fees) is acceptable in the context of the current low interest rate environment while the portfolio's duration-to-call was 4.2 years as at end December 2011, as a result of its holdings as explored below.
While the portfolio has a relatively large allocation to sovereign bonds (74.0%) which presumably has led it to post a lower yield than its peers, credit selection still remains a driver of returns, with 22.9% of the portfolio invested in corporate debt. The fund manager has demonstrated a willingness to ramp up or down its exposure to various industries/sectors according to its quarterly investment views as exhibited by its gradually increasing exposure to government securities from 13.1% to 74% within the space of two years (March 2010 – March 2012).
The fund's portfolio has a high overall credit quality as only slightly over 13% of the portfolio was invested in non-investment grade debt. Alongside credit selection, the manager also uses duration management to generate alpha. As examined from its semi-annual report at end December 2011, we note that the fund manager has over-weighted the short-to-neutral duration (1-5 years) bond section to reduce interest rate risk, as compared to previously being overweight in the longer-duration section, which would stand the fund in good stead when interest rates rise.
Currency movements are also likely to be an important driver of returns since the portfolio's underlying securities are largely denominated in Asian currencies, while derivatives are also employed to achieve the intended currency exposure. The fund’s heaviest-weighted foreign currency-longs were the Korean Won (22.5%), Thai Baht (12.1%) and the Malaysian Ringgit (15.0%, despite being 50% hedged) as of end December 2011.
Investors should note that the fund is managed from a SGD perspective which will see the fund manager be mindful of the currency effects between the SGD and the various currencies it is exposed to whilst investing.
[Data as of 31 March 2012]