- We think that an active allocation combining both top-down and bottom-up research will be important for investors into Asian IG.
- The Manulife Asia Pacific Investment Grade Bond Fund uses a combination of interest rate strategies, credit positioning, and active FX management to generate returns. On the FX front, it will maintain an at least 70% exposure to SGD, which could help mitigate volatility in other Asian currencies.
- The fund generally has a diverse exposure to different types of issuers, including on a geographical and sectoral level.
- The Manulife Asia Pacific Investment Grade Bond Fund has displayed its ability to navigate the Asian IG segment with its solid performance and downside risk management. It is available in two share classes, one accumulation, and one monthly-distributing.
The Asian Investment Grade (IG) bond segment remains an integral part of the fixed income universe, and integral for a balanced and diversified bond portfolio. In this article, we take a deeper dive into the Manulife Asia Pacific Investment Grade Bond Fund, and outline the key reasons why it is one of our top picks in the Asian IG segment.
Our views on Asian IG
As outlined in our recent article, we believe Asia continues to enjoy a stable growth-policy mix. However, there were divergences in macro outlooks within the various Asian markets, with economic weakness in China and resiliency in other countries like South Korea. While yields are attractive compared to historical averages, credit spreads for Asian IG bond remained fairly tight relative to history.
Amidst the divergent macro outlooks within Asia, idiosyncratic risks within each market and tight spreads, we believe an active approach will be crucial in the Asian IG space. The Manulife Asia Pacific Investment Grade Bond Fund integrates both top-down and bottom-up research to help investors navigate the Asian IG landscape.
Introducing Manulife’s Asia Pacific Investment Grade Bond Fund
About the fund
The Manulife Asia Pacific Investment Grade Bond Fund was incepted in Jan 2014, and seeks to maximise total returns from a combination of capital appreciation and income generation through investing primarily in a diversified portfolio of investment grade debt securities issued by governments, agencies, supranationals, and corporate issuers in the Asia Pacific region.
The fund expects to generate returns from a combination of three sources: (i) interest rate strategies (interest rate duration and yield curve); (ii) credit positioning (sector allocation and name selection); and (iii) active FX management. The investment process comprises top-down fundamental research of each market, as well as bottom-up credit research of each issuer.
Its benchmark is a composite, comprising (i) 70% JP Morgan Asia Credit Investment Grade Index (SGD Hedged); and (ii) 30% JP Morgan Emerging Local Markets Index Plus Asia (SGD). This composite benchmark not only reflects the fund’s exposure to a mix of Asian USD bonds and Asian LCY bonds, but underscores the portfolio’s commitment to maintain at least a 70% FX exposure to SGD (after hedging).
Investment team
The fund is currently managed by Manulife’s Pan-Asian Bond team, which is part of the broader Asian Fixed Income team. This team consists of over 70 fixed income investment professionals on-the-ground. The fund’s key investment personnel also has considerable knowledge of markets, altogether averaging over 21 years of industry experience.
Diverse allocation including underweight to China
Geographically (as of 31 Jul), the fund’s largest allocation is to China (27%), though it nonetheless indicates a slight underweight against its benchmark (33%) (Chart 1). The fund managers expect an uneven path to recovery in China given recent lukewarm economic data and have expressed caution on the magnitude and effect of broader demand-side stimulus so far. We think this uncertain view on China may have contributed to the slight underweight highlighted above. On balance, given our views on Asian IG described in previous sections, we believe the cautious approach to China (observed through the underweight in China) appears well-warranted.
The fund’s top holdings show a diverse mix in the type of bonds it holds (Table 1). Within its top corporate bond holdings, we see several well-known issuers within their respective market, such as Singtel (telecommunications company from Singapore), SK on (automotive parts company from South Korea), and HDFC Bank (bank from India). In addition, the fund also has a significant exposure to sovereigns across various countries like Thailand, South Korea, and Indonesia, as well as one supranational issuer in the Asian Development Bank. As a whole, we think that the top holdings showcase the large extent of diversification present in this fund, be it in the type of issuer (corporate / sovereign), geography, or sector.
Chart 1: Fund’s largest allocation is to China, but nonetheless represents underweight to benchmark
Table 1: Fund’s top holdings are diversified
| Top 10 Holdings | Weight (%) | Type of Bond |
| Asian Development Bank 6.2% 10/06/2026 | 1.9% | Supranational |
| Thailand Government Bond 3.39% 06/17/2037 | 1.9% | Sovereign |
| United States Treasury Note/Bond 2.25% 02/15/2052 | 1.8% | Sovereign |
| Korea Treasury Bond 3.25% 03/10/2053 | 1.8% | Sovereign |
| Singtel Group Treasury Pte Ltd 3.3% PERPETUAL | 1.7% | Corporate - Telecommunications |
| SK on Co Ltd 5.375% 05/11/2026 | 1.6% | Corporate - Automotive Parts |
| Indonesia Treasury Bond 7% 09/15/2030 | 1.6% | Sovereign |
| HDFC Bank/Gandhinagar 5.686% 03/02/2026 | 1.5% | Corporate - Financials |
| Zhongsheng Group Holdings Ltd 3% 01/13/2026 | 1.5% | Corporate - Automotive Retail |
| HongKong Land Finance Cayman Islands Co Ltd/The 5.25% 07/14/2033 | 1.4% | Corporate - Real Estate |
| Source: Manulife, iFAST compilations. Data as of 31 Jul 2023. | ||
Active FX management provides additional source of alpha
Apart from credit positioning, we also like that the fund is able to generate alpha from other sources. This not only gives the fund managers to outperform in normal markets, but also could provide additional resilience even in down markets.
One of these sources arises from active FX management. While the fund has specified it will maintain at least a 70% exposure to the SGD (after hedging), the remaining 30% is flexibly managed depending on the fund manager’s FX views. As of 31 Jul, the fund has a large overweight to the SGD (89% against the benchmark’s 74%) and also has a notable 0% allocation to the RMB representing a 5.1% underweight (Chart 3). Considering the strong performance of the SGD against the RMB in the past year (and over longer time periods as well), this may have helped to support returns even in a tough environment for Asian bonds. To conclude, we believe that the fund’s active FX management will be extremely helpful for investors especially given the Asian local-currency bond exposure, and the fund’s SGD overweight may continue to support performance ahead.
Chart 2: Fund has large overweight to SGD, and is also underweight RMB
Fund features
The fund currently has two share classes: A SGD and A MDis. The former is an accumulation share class, while the latter aims to provide monthly distributions (on the 15th day of each month). For the latter MDis share class, the average annualised dividend yield of the fund (Class A-MDis) for the period 1 July 2022 to 30 June 2023 is 3.67% p.a.
Fund performance
Within the Asian Fixed Income Fund space, the Manulife Asia Pacific Investment Grade Bond Fund stands out not only for its solid historical performance, but also for its downside risk management.
In terms of returns, the fund has delivered annualised returns of about 1.9% over the past 5 years (NAV to NAV), outperforming the benchmark (1.5%) by about 35 bps (as of 31 Jul) (Table 2). Based on our estimates, it has also outperformed an average of its Asian IG peers on our platform (-0.4%) by a significant margin of about 222 bps.
In terms of downside risk management, the fund has also done well against its peers (Chart 3). Based on our estimates, it has seen a maximum drawdown of about -16.0% over the past five years, lower than the peer average of -21.0%. In addition, its downside volatilities across both a 3-year and 5-year horizon have also generally come in below peer averages.
Table 2: Fund has generally outperformed benchmark and peers
| Timeframe | Manulife Asia Pacific IG Bond Fund (Cl A Mdis) | Benchmark (%) | Peer Average (%) |
| 1 month | 0.19% | 0.22% | -1.03% |
| 3 months | -0.33% | -0.26% | -0.89% |
| Year-to-date | 3.18% | 2.08% | 1.28% |
| 1 year | 1.71% | 0.00% | -1.94% |
| 3 years | -0.60% | -1.77% | -4.95% |
| 5 years | 1.87% | 1.52% | -0.35% |
| (Fund
and Benchmark) Source: Fund factsheet, iFAST compilations. Data as of 31 Jul
2023. (Peer Average) Source: Bloomberg, iFAST compilations, iFAST estimates. Data as of 31 Jul 2023. Fund performances are NAV-NAV. |
|||
Chart 3: Fund has displayed good downside risk management relative to peers
Final thoughts
A combination of top-down allocation as well as bottom-up credit selection has become even more important today, considering the varied and diverse environment for the Asian IG universe. We recommend the Manulife Asia Pacific Investment Grade Bond Fund for investors looking to gain an active exposure to the Asian IG segment, as we think the fund has proven its ability to navigate this complex space through its superior performance and downside risk management.
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