16 December 2020

How Selectivity Delivers Enhanced Quality with Attractive Returns in Singapore Bonds

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How Selectivity Delivers Enhanced Quality with Attractive Returns in Singapore Bonds

In a turbulent year, Singapore dollar (SGD) sovereign bonds recorded strong returns of 7.7% year to date and 8.4% over one year.1 Yet again, the market has shown that it can offer stable and attractive returns with top-notch credit quality.

The local market offers a diverse mix of issuers across investment grade and junk rated credit issuers that lend itself to active credit selection as well as curve and duration positioning. Singapore’s top AAA sovereign rating,2 a stable monetary regime and underlying currency provide additional comfort for Singapore bond investors during choppy global economic conditions.

SGD Bonds Have Grown Into a US$150-Billion Market

Breakdown of LCY Bond Market Issuance in Singapore

Source: ADB, as of 28 October 2020. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

With an 18-year track record, PineBridge Investments has been investing in high quality SGD-denominated fixed income instruments issued by Singapore and non-Singapore entities. The PineBridge Singapore Bond Fund is ranked in the first quartile among peers in a 10-year period.3 We spoke with the Fund’s award-winning4 portfolio manager Omar Slim, CFA on the key performance drivers of the Fund, how it’s different from peers, and the compelling opportunities in this market going forward.

Q: Covid-19 threw a spanner into the works. How is the Fund navigating the Singapore bond market in the current environment? How has your positioning changed since the start of the year?

The PineBridge Singapore Bond Fund invests in corporate bonds, quasi-sovereign bonds and sovereign bonds to navigate through different cycles. Broadly, 2020 had seen a period of abrupt and violent deterioration in risk sentiment in the first quarter when the extent of the pandemic became known. That was followed by a prolonged period of risk, driven by the massive counter-cyclical policy response. The Fund managed to limit the downside in the first period through owning safe-haven sovereign bonds, and later benefitted from the rebound in risk sentiment through its exposure to credit instruments.

Q: What are the key contributors to the Fund’s strong long-term performance?

Traditionally, credit risk selection has been the key contributor to the Fund’s performance and to a lesser extent duration and curve positioning. This year is no exception.

Q: What differentiates the Fund from its peers?

There are considerable resources that this Fund benefits from. It has two major alpha drivers, credit and rates, and has historically been able to navigate cycles well by having a balanced approach to spread risk between rates and credit risks. The Fund also has a conservative risk profile, with credit risk consistently monitored.

10-Year Risk/Return Comparison vs. Peers

Risk vs. Category

10-Year Risk vs. Category

Return vs. Category

10-Year Return vs. Category

Note: Rankings are out of 17 funds.
Source: Morningstar, SGD Bond Category as of 30 September 2020. Morningstar Risk is an assessment of the variations in a fund's monthly returns in comparison to similar funds. The greater the variation, the larger the risk score. Morningstar Return is an assessment of the fund's excess return over a risk-free rate (the return of the 90-day Treasury bill) in comparison to similar funds. Funds with less than three years of performance history are not rated. For illustrative purposes only. We are not soliciting or recommending any action based on this material. Past performance is indicative of future results.

Q: Singapore bonds are sometimes perceived as “plain vanilla” investments. Why is active credit selection important in this market?

Singapore bonds are not plain vanilla instruments. There is, in fact, considerable diversity in the profiles of the credit issuers in the Singapore dollar bond market. Credit selection is critical because there have been some defaults in the Singapore dollar space, which could have been avoided if a rigorous credit selection process was in place, which we believe we have.

Q: When considered as part of a broader fixed income portfolio, what role can Singapore bonds play alongside other fixed income assets like Asian bonds or global bonds?

Singapore bonds make a lot of sense for Singapore dollar-based investors. The Fund can be a good addition for investors looking for an actively managed allocation into a high credit quality portfolio designed to provide stable income with capital preservation.

Q: Environmental, social, and governance (ESG) criteria are increasingly integrated into investment decision making processes. How does the Fund incorporate ESG into its credit research and investment process? Why is this important?

PineBridge is a signatory of the UN Principles for Responsible Investment (UNPRI), with an A+ rating.5 Our global fixed income team has a fully integrated ESG framework in place that generates ESG scores for all countries and companies we consider investing in. We view ESG factors as a risk-mitigating tool and a gauge of the government/management quality, helping us manage downside risk and capture upside opportunities as there is much diversity among issuers.

Q: How do you manage risks in the portfolio? Have there been any significant changes in your approach to risk management since the pandemic?

We measure all sorts of risks, the most important of which are credit, interest rate, and liquidity risks. All three have become more intense in this cycle, and we have engaged in major simulations and stress tests to make sure the Fund is protected in a diverse set of scenarios. We are pleased that the Fund has performed well this year and remained liquid.

Q: What are the biggest opportunities as well as risks you see on the horizon? What global or local developments are you keenly watching?

In our view, the biggest opportunity continues to be within the corporate credit space, as well as in having a nimbler duration positioning. Within the local scene, it is critical to monitor and act upon any new policy measures the Singapore government might be taking. The Singapore government has been proactively and, so far, successfully using its policy levers, particularly on the fiscal side, to counter the impact of this crisis. On the global side, we expect the major themes will continue to be the pandemic and its long-lasting impact, the critical China-US relationship which we expect to remain challenged, and the “zombification” of some corporate segments and issuers that are unable to repay their debts.

Footnotes

1 Source: PineBridge, JP Morgan, as of 30 September 2020. Returns are represented by the JP Morgan Singapore Government Bond Index.
2 Source: Monetary Authority of Singapore, https://www.mas.gov.sg/bonds-and-bills/investing-in-singapore-government-securities/Singapore-Government-Credit-Rating. Accessed 11 November 2020.
3 Source: Morningstar, as of 30 September 2020. Category; SGD Bond. Third-party rankings from rating publications are no guarantee of future investment success. Working with a highly rated advisor does not ensure that a client or prospective client will experience a high level of performance or results.
4 Portfolio manager Omar Slim was Highly Commended, Most Astute Investor category, Asian G3 Bonds and Asian Local Currency Bonds in Singapore, The Asset Benchmark Research Awards, 2018. For details of methodology, please visit: https://www.theasset.com/research-project/asian-g3 and https://theasset.com/research-project/asian-local-currency. The awards mentioned are for reference only and are no guarantee of future investment success. Generally, ratings, rankings, and recognition are based on information prepared and submitted by the advisor, and are part of a process in which not all advisors elect to participate.
5 As of 10 November 2020. For illustrative purposes only. To access the Full Assessment Report, please visit https://www.pinebridge.com/PRI-assessment. To access the Transparency Report, please visit: https://www.pinebridge.com/PRI-transparency. Principles for Responsible Investment (PRI) ratings are based upon information reported by PRI signatories. For further details on PRI methodology, please visit https://www.unpri.org/signatories/about-pri-assessment. PineBridge Investments has been a PRI signatory since 22 June 2015. Third-party rankings and recognition are no guarantee of future investment success. Working with a highly rated advisor does not ensure that a client or prospective client will experience a higher level of performance or results. Ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.


Disclosure

This document is not an offer or solicitation to purchase or sell units of the PineBridge International Funds – Singapore Bond Fund (the “Fund”). Investors should read the prospectus and product highlights sheet of the Fund, available from PineBridge Investments Singapore Limited (the “Manager”) and its authorized distribution partners, for further details including the risk factors before investing in the Fund. The Fund is included in the Central Provident Fund (“CPF”) Investment Scheme. The CPF interest rate for the CPF Ordinary Account is based on the 12-month fixed deposit and month-end savings rate of the major local banks. Under the CPF Act, the CPF Board pays a minimum interest of 2.5% per annum when this interest formula yields a lower rate. Please refer to the website of the CPF Board for details on CPF interest rates. The value of the units in the Fund and the income accruing to the units, if any, may fall or rise. Past performance may not be a reliable guide to future performance. Any prediction, projection or forecast on the economy, securities markets or the economic trends of the markets targeted by the Fund are not necessarily indicative of the future or likely performance of the Fund. An investment in the Fund is subject to risks, including the possible loss of principal amount invested. The Fund may use or invest in financial derivatives for efficient portfolio management and hedging purposes. Investments in the unit trusts are not deposits or other obligations of, or guaranteed or insured by the Manager or any of its related corporations. This document does not constitute investment advice or recommendation and was prepared without any regard to the specific investment objectives, financial situation or the particular needs of any person. Investors may wish to seek advice from a financial adviser before making a commitment to invest in units of the Fund. In the event an investor chooses not to seek advice from a financial adviser, the investor should consider whether the Fund is suitable for him. The portfolio holdings mentioned herein are subject to change and are not intended to be a recommendation to buy or sell a security or an indication of the performance for the subject company/issuer. The information contained herein is based on sources that the Manager believes to be accurate and reliable at the date it was made, and there is no guarantee or warranty on its accuracy or completeness. Investors should not act on it without first independently verifying its contents. Any opinion or estimate contained in this document is subject to change at any time without notice. The Manager and its related corporations together with their respective directors and officers may have or may take positions in the securities mentioned in this documentation and may also perform or seek to perform broking and other investment services for the corporations whose securities are mentioned in this documentation as well as other parties. PineBridge Investments is a group of international companies that provides investment advice and markets asset management products and services to clients around the world. PineBridge Investments is a registered trademark proprietary to PineBridge Investments IP Holding Company Limited. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore (“MAS”). Issued by PineBridge Investments Singapore Limited, located at One George Street, Unit 21-06, Singapore 049145 (Company Reg. No. 199602054E).

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