Q&A Series: Anchoring Your Wealth: The Case for iFAST-Eastspring Lion Bond Fund in Your Portfolio.

Singapore’s fixed income market is experiencing a profound shift, anchored by investor demand for resilient yields and capital preservation in a volatile global economy. Against this backdrop, the iFAST-Eastspring Lion Bond Fund (the “Fund”) offers a sophisticated approach to income generation, strategically anchoring its portfolio in robust SGD-denominated bonds while dynamically capturing opportunities across global bond markets. Eastspring provides investors with a structured approach that balances localised currency stability with global diversification, unlocking sustainable returns in a shifting interest rate environment.

Eastspring Investments (Singapore) Limited (“Eastspring”) is a global asset management firm wholly owned by Prudential plc, with a focus in Asia at its core. Eastspring’s investment approach is high-conviction and fundamentally driven, targeting forward-looking opportunities across equities, fixed income, and multi-asset solutions.

This collaboration between iFAST Financial Pte Ltd (“iFAST”) and Eastspring Investments (Singapore) Limited started in 2022. The Fund was previously managed by DWS Investments Singapore Limited before being acquired by iFAST. Following the transition, iFAST partnered with Eastspring as sub-investment manager to further develop the Fund’s investment strategy and capabilities.

In the article today, we are pleased to have the Portfolio Manager provide their insights on the Fund, specifically the fixed income spectrum.

1) The Fund maintains a predominant allocation to SGD bonds the portfolio, alongside exposure to global bond markets. What strategic advantage does this offer compared to a purely global bond fund?

The Fund invests in only investment grade  (IG) bonds and predominately in SGD-denominated securities with the rest in global (non-SGD-denominated) IG credits.  For SGD investors, this structure offers 3 advantages that a purely global bond fund cannot match:

a. Lower volatility from a currency-hedged core: The SGD bond sleeve of the Fund is naturally denominated in SGD, hence SGD-based investors can enjoy yield and potential price appreciation without worrying about currency swings. SGD bonds have historically demonstrated lower interest rate volatility than U.S. Treasuries . This helps the Fund to deliver better returns compared to the amount of risk taken and reduces drawdowns during U.S. rate sell-offs.

b. Stability from high quality SGD credit:  The Fund’s SGD holdings are concentrated in AA and A rated issuers which historically have low default rates. In risk-off periods, this sleeve holds up better and provides stable income. This in turn enables the global bond sleeve to be more dynamic. When USD / global rates peak, the Fund can invest in bonds with longer maturities or rotate into higher-yielding IG credits without taking on excessive drawdown risk.

c. Defensiveness from Singapore’s safe-haven status: Singapore’s AAA  sovereign rating and SGD’s status as a safe-haven currency in Asia help the SGD bond allocation to be a defensive anchor for the portfolio, especially when regional risk spikes.

In summary, the global sleeve of the Fund enhances diversification and provides opportunities for higher yields and active curve positioning (e.g. curve steepeners, curve flatteners). Meanwhile, the predominant core allocation to SGD bonds makes the Fund performance less volatile for SGD-based clients. Instead of limiting the Fund’s opportunity set, the Fund’s core SGD bond allocation provides a more stable base that allows the Fund to seek extra returns from non-SGD and global investment grade bonds. This balanced approach strengthens the portfolio’s overall resilience.

2) With traditional savings rates moderating, how does the Fund's yield profile offer investors a more compelling and stable income alternative?

With SGD fixed deposit rates off their 2023-2024 highs , the Fund offers investors a differentiated income solution:

a. Higher and more stable income: The Fund targets a running yield above SGD fixed deposit rates, achieved primarily by investing in investment-grade credit and sovereign bonds. The entire portfolio is invested in investment-grade bonds and has a minimum average portfolio rating of A-. This provides stable coupon income with low default risks.

b. Income plus upside potential: The steady portfolio carry from the SGD sleeve allows the manager to add duration in the global bond sleeve when U.S. rates peak. This provides potential capital appreciation when rates fall.

As saving rates moderate, the Fund aims to provide SGD-based investors an appealing income stream, delivering lower volatility than equities or high-yield bonds, and better risk-adjusted returns compared to a 100% global bond portfolio.

3) Focusing on the SGD sleeve — what are the team's views on SGD bonds moving forward, and what opportunities do you see in this part of the market?

We have a positive outlook on SGD investment-grade bonds for the next 6-12 months.

We expect SGD bonds to provide steady income. Singapore’s bond market continues to benefit from ample liquidity, capital inflows and limited net new supply.  Government and statutory board bond issuances are measured, and high-quality corporates are selective about raising funding.  This backdrop helps keep spreads stable and the secondary market liquidity firm.

As global rates stabilise, we see opportunities in extending duration selectively to lock in attractive yields.  We seek opportunities in quasi-sovereigns and strong corporates including financials which have high credit quality but offer more attractive yields than Singapore Government Securities (SGS).  Our aim is to maximise carry while keeping duration risk moderate.

4) Turning to the global sleeve — how has the Fund's exposure to global bond markets contributed to its overall yield and performance, and how do the two sleeves complement each other?

The global sleeve provides the avenue for enhanced yield and dynamic duration management.

The allocation to non-SGD investment-grade bonds (eg USD bonds) allows the Fund to capture higher absolute yields (after FX hedging) than what is available in SGD bond markets. This sleeve has helped lift the Fund’s overall running yield and provided performance alpha when U.S. rates peaked and rallied. We manage these bonds on a FX-hedged basis, albeit not fully, hence returns are driven mostly by rates and credit selection.

On the other hand, the SGD sleeve provides stability, low volatility, and steady carry.  Because the SGD core reduces overall portfolio volatility, we can take active duration and credit positions in non-SGD markets without exposing the Fund to outsized drawdowns.

Thus, when global rates are volatile, the SGD sleeve dampens the downside movement. When rates peak and start to fall, the global sleeve allows us to capture duration and yield opportunities more aggressively than a fund without a stable core. It works like a barbell: stability at home, optionality abroad.

5) The Fund targets a minimum "A-" rating at the portfolio level through a rigorous credit selection process. In an environment of geopolitical uncertainty and market volatility, how does this high investment grade quality add value to investors' portfolios?

Maintaining high investment-grade quality is the Fund’s main tool for controlling risk, which is important during heightened market volatility.

When geopolitical tensions or market volatility rises, lower-rated credit and emerging market debt tend to sell off sharply.  On the other hand, a portfolio that is anchored in investment grade bonds will be more resilient during periods of risk aversion.

Additionally, high credit quality issuers tend to have stronger balance sheets and access to funding even in challenging market conditions. That means coupons are more secure and less likely to be cut or deferred, which results in more predictable coupon income and lower default risk for the Fund.  For investors seeking income, that translates to a more dependable cash flow stream.

6) With inflation concerns still present, how does the Fund actively manage duration exposure to balance interest rate risks while capturing yield opportunities?

Our team manages duration exposure dynamically. Our process starts with rigorous macroeconomic and policy analysis which forms the foundation for our portfolio positioning.

Our team regularly conducts a comprehensive review of inflation trends, central bank guidance, labour markets, and growth momentum across key markets like the U.S., Singapore and Australia.  This top-down assessment helps us to determine our view of the interest rate cycle and identify market mispricings. This sets our duration positioning for the portfolio.

To implement our view, we adjust duration through trading both physical bonds and liquid instruments such as U.S. Treasury interest rate futures. Futures give us flexibility to add or reduce duration quickly, with lower transaction costs and better liquidity than trading cash bonds, especially during volatile periods. For example, if we believe the market is pricing too many cuts too soon, we can reduce duration exposure via a short futures position.

In summary, the strategy anchors income and stability in SGD terms, uses macro-driven analysis to set duration direction, and executes adjustments efficiently with futures to balance rate risk against maximising yield opportunities.

7) Bringing it all together — given the current backdrop, why does the portfolio management team believe this is a compelling time for investors to allocate to this strategy?

Firstly, investors can benefit from attractive income opportunities without needing to take excessive credit risk.  After the 2022-2023 rate hikes, yields of investment-grade bonds are at levels we have not seen in over a decade.  By investing in the Fund, investors can potentially lock in relatively attractive yields backed by high credit quality.

Secondly, investors in the Fund can enjoy steady income and potential capital appreciation. With the on-going energy supply challenges keeping inflation risk elevated, central banks are likely to stay on hold or even hike modestly in the near term.  At the same time, the energy supply disruption brings downside risks to growth, hence any monetary policy tightening is expected to be temporary.  Once the conflict stabilises, central banks can be expected to reverse course.  We are hence unlikely to revisit the rate highs of 2023.   While investors stay defensive and wait out the inflation noise, the SGD bond sleeve provides stable carry and dampens volatility.  The global sleeve gives the Fund flexibility to extend duration and capture capital appreciation as rates ease.

Thirdly, investors in the Fund can benefit from enjoying income today while holding a portfolio that is relatively resilient. This is important as near-term market downturns cannot be ruled out amid heightened geo-political risk and growth uncertainty. A portfolio of high-quality credits can limit downside in risk-off events and help preserve liquidity.

For investors who want income without the volatility of equities, we think the risk-reward is attractive right now.