- Primarily invested in Asian Bonds and US High Yield Bonds
- Able to have exposure to equities, but limited to 20% of the portfolio
- Portfolio expected to have a moderate to high yield, given its focus on US high yield bonds
- Managed from an SGD-perspective
- Suitable for investors who are interested in earning the income from investing in a mix of Asian bonds and US high yield bonds, and are comfortable with having a small amount of equity exposure in the portfolio
The fund seeks to achieve a regular income stream by investing primarily in two segments of the bond market: the Asian bond market and the US high yield bond market. The fund achieves exposure to these two segments via investments in the Eastspring Investments – Asian Bond Fund and the Eastspring Investments – US High Yield Bond Fund. The manager intends to allocate between 30% and 70% into either fund depending on the relative attractiveness of either segment; at the time of writing, the fund held 47.8% in US high yield bonds and 42.1% in Asian bonds. As the fund is managed from an SGD-perspective, the manager passively hedges its US-dollar denominated assets back to the SGD, to protect the fund’s running yield in Singapore dollar terms.
In addition to the two underlying funds, the manager is also allowed to allocate up to 20% of the portfolio into other “Asia Pacific investments”. The manager has typically utilised this flexibility to invest a small portion of the portfolio in equities. As of end-December 2011, the fund had 4.73% allocated to equity securities (all of which are Singapore-listed), which included a 1.38% allocation to real estate investment trusts (REITs). The inclusion of a small amount of equities and REITs in the portfolio should aid in the diversification of returns for the fund, but investors should note that by investing in the fund, they may be subject to a small amount of equity market risk.
The fund has managed a $0.004 per unit monthly payout since its inception (with a $0.006 per unit payout on each 12th calendar month), which is equivalent to a 5.0% yield computed on the fund’s initial issue price of $1.00. Given that the manager has guided for a continuation of this distribution, this suggests that the fund manager will be targeting to achieve at least a 5.0% net yield on the fund’s underlying investments. It is our opinion that such a target is reasonable based on the latest yield-to-maturity figures for major US high yield bond indices and Asian bond indices, but investors should be cautioned that should the fund not be able to achieve a sufficientlyhigh yield based on its underlying assets, a continuation of the distribution will likely result in payment being made out of invested capital, rather than income.
The fund’s current yield of 6.13% (excluding fees) as of end April 2012 indicates that investors need not worry too much over distributions being paid out of capital, as at the time of writing, it is close to meeting the 5.0% required net yield. The fund’s duration of 4.61 years is fairly representative of a segment where debt issues are usually kept short, as yields are typically higher.
The fund would be suitable for investors who are interested in earning the income from investing in a mix of Asian bonds and US high yield bonds, and are comfortable with having a small amount of equity exposure in the portfolio. Investors who are looking for an annual payout structure may be interested in the Class A, which has a lower minimum investment amount.
[Data as of 30 April 2012]