At US$450 billion,1 the Singapore dollar bond market is one of the largest and most diverse fixed income opportunity sets in the fast-growing ASEAN (Association of Southeast Asian Nations) region, offering opportunities from investment grade to high yield, and across a range of local and foreign issuers; and government and corporate credits. While a large part of developed market bonds still generating negative yield, Singapore remains one of few developed markets that continue to offer positive yield. Singapore’s top AAA sovereign rating,2 robust monetary regime and underlying currency offer stability amid uncertain global markets.
For nearly 20 years now, the PineBridge Singapore Bond Fund (the Fund) has been investing in high quality local-currency bonds and ranks in the top quartile in Morningstar’s Singapore Dollar (SGD) Bonds category for three-, five- and 10-year periods.3
Senior Portfolio Manager Omar Slim, CFA, explains the Fund’s time-tested investment strategy, key performance drivers, and how his team navigates the market to find potential alpha.
Q: What role can Singapore bonds play in investors’ portfolio?
Omar Slim: Singapore bonds make 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 and diversified portfolio designed to protect capital and provide a relatively stable income. With fixed deposit rates still at very low levels, local investors looking for better returns without foreign currency exposure risks will find Singapore bonds attractive. The Fund’s portfolio holds some of the largest SGD issuers, which include household names in Singapore such as corporate and quasi-sovereign issuers.
Q: How can active credit selection help realize enhanced returns in Singapore dollar bonds?
Omar Slim: There is considerable diversity in the profiles of the credit issuers in the Singapore dollar bond market. As such, fundamental research is critical to understand and monitor the issuers selected to be part of the Fund. Credit selection is important to avoid default risk. There have been some defaults in the Singapore dollar space in the past. But we think those events should be avoided with a rigorous research process, which we believe we have.
In addition to credit selection, it is important to note that duration management is becoming critical in today’s inflationary environment to manage risk from policy rate hikes. A bond’s duration measures its sensitivity to changes in interest rates. So, depending on the environment we’re in, we will pick the type and maturity of bonds that fit our view of the world.
Q: The Fund marks 20 years since inception in March 2002.4 What are the key contributors to the Fund’s longevity and strong long-term performance?
Omar Slim: Traditionally, credit risk selection has been the key contributor to the Fund’s performance and to a lesser extent duration and curve positioning. We are very pleased to reach this milestone, which we believe underscores investors’ trust in our time-tested strategy.
Q: What differentiates the Fund from its peers?
Omar Slim: This Fund leverages our capabilities across credit research as well as our top-down views. This translates into two major alpha drivers: credit selection and yield curve positioning. Historically we have 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 in terms of volatility compared to peers, with credit risk consistently monitored.
Source: Morningstar, SGD Bond Category as of 31 December 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material. Past performance is not indicative of future results. *Standard deviation is a basic measure of the fund risk, i.e. the volatility of the fund’s returns in relation to its average. The higher the standard deviation, the more volatile is the fund’s returns.
Q: Environmental, social, and governance (ESG) criteria are increasingly integrated into investment decision making processes. How does the Fund consider ESG factors in its credit research and investment process?
Omar Slim: ESG factors are fully integrated within our investment management process. We systematically analyze issuers across a number of category inputs covering the E, S and G. We complement our in-house research and engagement policy with third party ESG research. At the same time, PineBridge is also a signatory of the UN Principles for Responsible Investment (UNPRI). In 2020 we have been given the highest rating (A+) rating for our overall “strategy and governance”.5
Q: The last couple of years have been volatile for markets. How do you manage risks in the portfolio?
Omar Slim: We measure a number of risks, the most important of which are credit, interest rate, and liquidity risks. All three have been present in this cycle, and we have engaged in a number of simulations and stress tests to make sure the Fund is protected in a diverse set of scenarios.
Q: What are the biggest opportunities as well as risks you see on the horizon? What global or local developments are you keenly watching?
Omar Slim: We expect the pandemic, with all its ups and downs, will remain the dominant theme for the first quarters of 2022. In addition, geopolitical risks and monetary policy will play an increasingly important role as central banks around the world exit their ultra-accommodative stances. Within Asia, Chinese policy will have a large impact on Asian credit, in particular Chinese high yield bonds, which the Fund is not invested in. On the other side, we expect the Asian investment grade credit market will remain relatively resilient in the midst of these uncertain and potentially volatile events.
In Singapore, we believe the economic recovery will continue into the new year and Singapore’s gradual reopening will continue. We also expect a reduction of the targeted fiscal measures that Singapore had in place, in particular related to the job market. GDP growth in 2022 will be strong but will normalize from 2021’s bounce back. We foresee inflationary pressures to remain elevated for the foreseeable future as well.
Given this backdrop, we anticipate greater dispersion of returns within the credit markets, but we expect investment grade spreads broadly to be well supported. In our view, the biggest opportunity continues to be within the corporate credit space, as well as in having a nimbler duration positioning.
1 Asian Development Bank, as of 31 December 2021. This shows the absolute amount of local currency (LCY) bonds outstanding, including government and corporate bonds, as well as those issued by nonresidents.
2 MAS, https://www.mas.gov.sg/bonds-and-bills/singapores-bond-market-overview/credit-rating, accessed 21 January 2022
3 Morningstar as of 31 December 2021. Based on quarter-end trailing returns. Fund track record as of 31 December 2021. Time periods greater than 1 year are annualized.
4 The Fund was incepted on 26 March 2002.
5 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. For illustrative purposes only. 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/reporting-and-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. Moreover, the underlying information has not been audited by the PRI or any other party acting on its behalf. While every effort has been made to produce a fair representation of performance, no representations or warranties are made by PRI as to the accuracy of the information presented, and no responsibility or liability can be accepted for damage caused by use of or reliance on the information contained within this report. Information regarding PRI methodology and grades is sourced from PRI. PineBridge Investments makes no representations, warranties, or opinions based on PRI methodology, ratings, or other data.
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). All rights reserved.
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