W.e.f 17 Oct 2011,DBS Enhanced Income Fund AUD-H is now known as Nikko AM Shenton Short Term Bond Fund (A$ Hedged).
Author : Fundsupermart.com
Nikko am shenton short term bond (A$ Hedged) - WITH 3.47% YIELD
We recognise that investors are always on the lookout for products which can provide a higher yield while taking relatively low to moderate risk. We are pleased to announce a new yet familiar product, one whose new share class now produces a much higher yield than its older counterpart.
The Nikko AM Shenton Short Term Bond (A$ Hedged) fund (previously known as DBS Enhanced Income Fund AUD-H) is the same fund as the SGD version, essentially has the same underlying fund, but with a AUD hedged share class. The effect of this AUD hedge is to deliver a much higher yield than the original SGD version, but with the additional risk of Australian dollar (AUD) currency exposure. The new yield of this fund is as follows:
Table 1: Yield on Nikko AM Short Term Bond (A$ hedged)
Original Nikko AM Shenton ShortTerm Bond Fund (S$)
Forward Gain from difference in AUD/SGD interest rates
Less platform fees (0.2%) and expense ratio (1.03%)
Net Indicative Yield of fund in (A$ Hedged)
Source: Nikko AM & iFAST Financial Pte Ltd, as at 17 May 2013.
How does the A$ hedged fund able to achieve such high yields?
The fund is essentially the same as the SGD class and hence, benefits from all the benefits of diversification, expert fund management and big fund size of the SGD class. The main reason why the fund is able to achieve a higher yield than the original SGD class is because of forward contracts which capture the difference between the high interest rates in Australia and the low interest rates in Singapore. This results in an immediate forward gain as shown in the above table which is added to the yield of the fund. The main risk of this fund besides those relating to the original SGD fund is the exposure to the Aussie dollar. This means that if the Aussie dollar weakens against the Sing dollar, then there will be a currency loss which will eat into the fund returns. Conversely, if the Aussie dollar strengthens, then the fund's returns will be enhanced.
The forward gains by the A$ hedged fund are not guaranteed and are subject to foreign exchange fluctuations, the difference in Australia and Singapore interest rates, and the price of purchasing these forward contracts. We will be updating the latest forward gain by Nikko AM on the Fundsupermart website on a regular basis.
In conclusion, investors can now enjoy at 0% sales charge from investing in a familiar fund in a new share class which benefits from a higher yield through three components of returns – returns from the Nikko AM Shenton Short Term Bond fund strategy, gains from higher interest rates in Australia, and potential gains/losses from fluctuations in the AUD/SGD exchange rate. This A$ hedged share class is also available as a parking facility fund.
Strength of the AUD
The declined unemployment rate in Australia boosted bond yields, sending the local currency to a three-week high in early to mid October 2011. The higher rate of employment translates to higher consumption rate which bodes well on the AUD as the Reserve Bank of Australia has less reason to cut interest rates in the near term.
The fund is a favourable option for investors who are looking for higher yielding solutions and willing to take on the currency risk, with credit risk and duration risk in the portfolio kept to a minimum.
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