Ask The Experts: Managing Bonds and Currencies Separately for Maximum Return [Part II]
Adam McCabe, Senior Portfolio Manager at Aberdeen Asset Management Asia Limited, explains how the Aberdeen Asian Local Currency Short Duration Bond Fund enhances yield for investors.
The fund's portfolio has large active weights in the physical bonds of Malaysia, South Korea and Thailand. Can you briefly explain the rationale behind these investment decisions?
- Primarily to enhance yield of portfolio on a relative value basis
- Remain underweight to 2 markets with unattractive yields - Hong Kong and Singapore
- Overweight in Malaysia, South Korea and Thailand markets due to higher yields
- From a currency perspective, the fund still likes the Singapore dollar (SGD)
- Monetary policy in Singapore is transparent and aims for gradual appreciation of SGD
- Bond exposure is managed separately from currency exposure
The fund has 0% exposure to the physical bonds and currencies of two countries, namely India and Taiwan, as of the fund's January 2012 factsheet. Why is this so?
- Access is an issue for both countries, and many countries in Asia
- India is an appealing market and the team is working to gain further access
- In the case of Taiwan, while access is an issue, yields are low due to excess capital
- Hence, the central bank is not willing to attract foreign capital, resulting in rather high barriers of entry to the Taiwan market
- The fund does not see this as a large constraint on the portfolio as the Taiwan market is not that attractive anyway
What are the reasons for a Singapore-based investor to invest in this fund considering the relative strength of the Singapore dollar?
- While the Singapore dollar is one of the Asian currencies expected to appreciate gradually over time, the SGD can perform very differently from the other Asian currencies
- Local investors should diversify their currency exposure from just the SGD, and into other Asian currencies
- Opportunities in the short duration space is also very limited for Singapore-based investors
- Government bonds with maturity less than 3 years are yielding less than 0.5%
- Local investors can gain additional yield besides diversification by investing in "Shorty"
- The fund currently has a yield of about 3%
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||16 April 2012
||Ask The Experts: Managing Bonds and Currencies Separately for Maximum Return [Part II]