SPEND, SAVE & SAFEGUARD - The Ultimate Ways to Maximize Your JPY Positive Carry Proceeds

Japan in Focus

Japan isn't just a popular travel destination. In the world of investment, Japan is also known for its Yen Positive Carry trades. With historically low interest rates, the Japanese Yen has become a favoured funding currency for positive carry trades i.e. to profit from the spread between the investment return and the cost of borrowing. Investors often borrow in Yen to finance cross-currency carry trades, such as investing in higher-yielding USD bonds. While it allows them to profit from the interest rate differential, they are inadvertently exposed to cross-currency risks.

However, using margin to invest into Japan is a currency-neutral trade that does not expose investors to unnecessary cross-currency risks. Our published article earlier this year on JPY Positive Carry with the NikkoAM Japan Dividend Equity Fund attracted many investors to try out FSMOne’s Margin Facility to generate additional potential income without requiring extra capital outlay.

Recapping on Key Financial Assets

Equity Fund in Focus

Nikko AM Japan Dividend Equity Fund JPY is a solid investment strategy for those seeking a balance between dividend yield and capital appreciation. This fund focuses on a well-diversified portfolio of dividend-paying equities listed on the Tokyo Stock Exchange, with a particular focus on companies that demonstrate robust, sustainable cash flows and stable dividend payouts.

However, in 2024, the BOJ's second-interest rate hike to 0.25% triggered a sharp rise in the Yen and caused many Yen carry trades to unwind. Despite this, the iFAST research team remains optimistic, advising investors to take advantage of the opportunity to "buy the dip" in Japanese assets. The team has maintained a target of 48,000 for the Nikkei 225 Index, which would surpass the all-time high reached in mid-July. This suggests a potential upside of up to 35% as of September 11, 2024.

Whole Lot Bonds & Bond Funds

Subsequently, as central banks around the world began cutting interest rates, which could potentially lead to rising bond prices (i.e. capital appreciation), we published an article on whole-lot bond financing. This piece outlined how investors could potentially enhance their total bond yield by purchasing an initial bond with cash and financing the additional bond through margin

The iFAST research team has initiated coverage on reputable issuers such as ESR Group, Barclays PLC, and FWD Group, ensuring that these bond issuers are financially sound and offer attractive propositions.

In October, we introduced another financing option for investors to gain exposure in fixed income via Bond Funds. These funds require a much lower minimum investment (as low as S$1,000) and offer greater diversification, with a portfolio of multiple bonds compared to individual bonds. Bond funds also provide a higher loan-to-value ratio of 71.43%, giving investors greater margin buying power.

We have selected 2 bond funds with strong dividend payouts and healthy performance track record to pair with the positive carry strategy.

·         PIMCO INCOME FUND CI E INC JPY-H (Div Yield: ~6.6%)

PIMCO is a global leader in fixed-income management, and its Income Fund was recognized in the FSM Choice Awards 2024 as the top-selling fixed-income fund. The fund’s diversified holdings, primarily in U.S. securitized assets, offer solid returns.

·         T.Rowe Price Diversified Income Bond Fund Axn JPY (Div Yield: ~7%)

The T.Rowe diversified income bond fund holds a globally diversified portfolio of bonds from over 80 countries and 16 sectors, with an average overall bond credit rating of A (investment grade and above). The global exposure has enabled the fund to capture additional returns as central banks outside of the US have also begin cutting interest rates.

These two bond funds are hedged share classes denominated in Yen, meaning that currency movements are largely mitigated as the fund manager uses hedging to mitigate against cross-currency movements. However, compared to an un-hedged share class (USD), it is expected that these hedged share classes are expected to slightly underperform due to the hedging costs, which will affect the total returns of these funds.

The Key Question: What’s Your Plan for Investment Proceeds?

Clients following the strategy have been enjoying a stable stream of passive income. For instance,  a client invested in the NikkoAM Japan Dividend Equity Fund JPY since March has been receiving monthly dividends credited directly into his JPY cash account.

Maximizing your investment returns is crucial, but how you manage your proceeds can make all the difference. Withdrawing cash and reinvesting are not the only options within the iFAST ecosystem.

SPEND, SAVE AND SAFEGUARD

As many people plan to travel to Japan for the upcoming holidays, why not think about spending your JPY investment returns through the following avenues?

1.      FSMOne Debit Card

From daily expenses to larger purchases in Japan, the FSMOne Debit Card lets you spend and access your JPY investment returns directly from your FSMOne Cash Account without the need to perform withdrawal to your bank account.

Enjoy competitive FX rate when performing the FX conversion for your purchases. However, do note that FSMOne Debit Card usage can only be withdrawn from SGD Cash Account. JPY proceeds will need to be converted to SGD before it is debited from your SGD Cash Account.

*Transaction will fail if there no balances in their SGD Cash Account.

2.      Multi-Currency Cash Account

3.      Travel Insurance

As you prepare for your year-end adventure to Japan, consider securing travel insurance. You can conveniently use income from your JPY positive carry strategy to cover the insurance cost by converting it into your SGD Cash Account and paying directly with your FSMOne Debit Card.

Discover the best travel insurance deals with us - Get 50% OFF on Sompo’s Single Trip Travel Insurance. Promotion ends on 20^th November 2024.

Maximize the Potential of Your JPY Investment Returns

As you explore these opportunities, it’s clear that Japan’s evolving economic landscape offers substantial potential for growth. Whether you're indulging in a winter getaway or looking forward to the cherry blossoms of spring, consider how you can make the most of your JPY investment proceeds.

Don’t let your returns sit idle—embrace the diverse strategies at your disposal and make your JPY proceeds work harder for you. Start today and unlock the full potential of your investments in Japan.

Disclaimer:

The use of margin involves a high degree of leverage and risk which can lead to losses as well as gains which are of a larger magnitude as compared to the movement of a security or market.

Investment products involve risk, including the possible loss of the principal amount invested. Past performance is not indicative of future performance and yields may not be guaranteed. All materials and contents found in this advertisement are strictly for information purposes only and should not be considered as an offer or solicitation to deal in any capital market products.

You should therefore carefully consider whether such a financing arrangement and/or investment products you are purchasing is suitable for you in light of your own financial position, experience, objectives, ability to bear risks and other relevant circumstances.

If you are uncertain about the suitability of the product financing and/or investment product, please seek advice from a financial adviser, before making a decision to use the product financing facility and/or purchase the investment products.

This article is not a contract of insurance. Insurance products are underwritten by the respective insurance partners and distributed by iFAST Financial Pte Ltd (“iFAST”).

All materials and contents found in this advertisement does not have any regard to the specific financial objectives, financial situation and particular needs of any specific person. You are advised to read the precise terms, conditions and exclusions specified in the relevant policy contract and consider carefully whether the product in question is suitable. If you are uncertain about the suitability of a product, please seek advice from a financial adviser before making a decision to purchase the product.

All debit cards are issued and powered by Nium, an entity regulated by the Monetary Authority of Singapore as a major payment institution under License No. PS20200276. iFAST is obligated to act accordingly to withdraw monies held under trust in your iFAST Cash Account to your debit card separately issued by the card issuer for payment services independently administered by card issuer.

While iFAST and/or any of its third-party providers has/have tried to provide accurate and timely information, there may be inadvertent omissions, inaccuracies, and typographical errors. Opinions expressed herein are subjected to change without notice. Please read our full disclaimer in the website.

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