Yields have been volatile given interest rate uncertainties, but bonds remain a compelling option for investors seeking income and stability. The United SGD Fund is able to make the most of such environments.
Over the past two weeks, bond yields have fallen and bond prices have rallied as data showed that the US Federal Reserve may finally be winning its battle against inflation. The two-year US Treasury slid to 4.63 percent on 13 July 2023, its lowest level in nearly a month, while the 10-year dropped to 3.76 percent.
Fig 1: 2Y and 10Y US Treasury yields (%)
Source: Bloomberg, as of 19 July 2023
Heading into the second half of 2023, there are reasons to believe bonds can continue to offer attractive value. For one, bond yields are near their highest levels in more than a decade. Furthermore, although the Fed has signalled two more rate hikes this year, the latest inflation data has convinced most economists that the end of the rate hike cycle is here or just one rate hike away. This means bond prices can start to rise again, thereby enabling potential capital gains alongside healthy income payouts.
Given this, on a risk-adjusted basis we continue to favour investment grade bonds over high yield bonds, and especially from issuers that can remain resilient during recessionary times. We think the sweet spot lies in bonds with maturities of 3-years or less. As the yield curve is currently inverted, this is where the highest yields are currently available, while avoiding the significant duration risks associated with longer-term bonds.
Why the United SGD Fund?
1. Laddered strategy offers enhanced yield
The United SGD Fund, by employing a laddered strategy that invests in bonds with a one, two and three year maturity, is well suited to benefit from this investment landscape.
In 2022, the Fund invested largely in bonds with shorter maturities of one or two years. This allowed it to capitalise on the rising interest rate environment because proceeds from matured bonds could be reinvested at ever-higher interest rates.
In 2023, with US interest rates rises starting to slow and yields starting to ease, the Fund moved into bonds with longer maturities of two or three years. This allowed it to lock in attractive yields before they fell any further.
By adopting this strategy and gradually lengthening its effective duration, the Fund has managed to successfully deliver optimised yields for investors in 2023. Looking ahead, Joyce Tan, the portfolio manager of the United SGD Fund, expects this trend to continue and sees the duration of the Fund possibly increasing from 1.2 years (as at 30 June 2023) to 1.60 years by the end of 2023.
2. Crisis-resilient
Although global economic conditions currently appear stable, our base case is that an economic slowdown or mild recession could still occur in late 2023 or in early 2024.
If this indeed happens, the United SGD Fund offers investors a potentially safer avenue to consider parking their funds in. The Fund has a preference for investing in investment-grade bonds issued by leading companies across defensive sectors such as financials, utilities, and industrials. Such companies tend to have good access to capital markets and resilient business models, even in a recession.
Figure 2: Sector allocation of United SGD Fund (%)
Source: UOBAM, as of 30 June 2023
Furthermore, the Fund closely tracks the fundamentals of all underlying companies in its portfolio. This has helped the Fund to remain defensive even during periods of market turbulence. Despite its long history, there has been no defaults in the Fund’s portfolio holdings. This is despite the occurrence of several major global economic crises, such as the Global Financial Crisis seen in 2008-09, the European debt crisis in 2011 and the Covid crisis in 2020. In fact, during these periods, the Fund outperformed many regional and global bond and equity indices.
Figure 3: United SGD Fund performance vs bond/equity indices during crisis periods
Source: Morningstar, as at 30 June 2023, in SGD terms. Data is based on United SGD Fund Class A (Acc) SGD portfolio.
3. Consistently outstanding
The United SGD Fund was recently awarded the Outstanding Achiever Award in Singapore Fixed Income category by Benchmark1.
Since its inception in 1998, the Fund has delivered positive calendar returns for 22 out of 24 years.
Figure 4: United SGD Fund calendar year returns (%) since inception
Source: UOBAM, as of 30 June 2023. Fund performance sourced from Morningstar.
Performance is net of fees and is based on United SGD Fund Class A (Acc) SGD, in SGD terms, on a NAV basis, with dividends and distributions reinvested, if any.
Past performance is not necessarily indicative of future performance.
MSCI Data are exclusive property of MSCI. MSCI Data are provided “as is”, MSCI bears no liability for or in connection with MSCI Data.
MSCI full disclaimer at msci.com/notice-and-disclaimer-for-reporting-licenses.
Fund Details
The United SGD Fund aims to achieve a yield enhancement over Singapore dollar deposits by investing in high-quality, short duration investment grade bonds. It aims to be a good defensive asset by offering investors with downside protection, while still being able to generate potentially attractive regular income.
| United SGD Fund – As at 30 June 2023 | |
| Investment objective | Invest substantially all its assets in money market and short term interest bearing debt instruments and bank deposits with the objective of achieving a yield enhancement over Singapore dollar deposits |
| Distribution policy^ | Class A SGD (Dist): Dividend rate of 4.0% per annum, paid out monthly* Class S SGD (Dist): Dividend rate of 5.0% per annum, paid out monthly* *Distributions are not guaranteed. Distributions may be made out of income, capital gains and/or capital. This relates to the disclosed distribution policy as set out in the Fund’s prospectus |
| Country allocation (%) | China: 21.70 Singapore: 14.84 South Korea: 11.19 Hong Kong: 7.71 India: 7.65 Japan: 6.61 Indonesia: 4.74 Others (including Cash holdings): 25.57 |
| Top 5 sector allocation (%) | Financials: 42.25 Utilities: 12.24 Industrials: 10.97 Consumer Discretionary: 6.64 Materials: 6:08 |
| Top 5 holdings (%) | Mizuho Fin Grp Cayman 3 Company 03/24 4.6: 2.62 Sumitomo Mitsui Financia 04/24 4.436: 2.42 Bank Rakyat Indonesia 07/23 4.625: 2.37 China Huadian Overseas Company Var: 2.09 Woori Bank 04/24 4.75: 2.01 |
| Fund classes available2 | Class A SGD Acc; Class A SGD Dist Class A USD Acc (Hedged); Class A USD Dist (Hedged) Class B SGD Acc Class D SGD Acc Class S SGD Dist Class S USD Dist (Hedged) |
| Management fee | Class B SGD Acc and Class D SGD Acc: 0.33% p.a All other Classes: 0.63% p.a. |
| Subscription fee | Up to 2% p.a. |
| Minimum subscription / trading size | Class A/S: S$1000/US$1000 (initial); S$500/US$500 (subsequent) Class B: S$500,000 (initial); S$100,000 (subsequent) Class D: S$1,000 (initial); S$500 (subsequent) |
*Source: UOBAM, information accurate as of 30 June 2023
1Please refer to uobam.com.sg/awards for the latest list of UOBAM awards
2Investors should refer to the Fund’s prospectus for more details on the different classes available. Please check with our distributors on the availability of the Fund Classe/small>
If you are interested in investment opportunities related to the theme covered in this article, here is a UOB Asset Management Fund to consider:
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Distributions will be made in respect of the Distribution Classes of the Fund. Distributions are based on the NAV per unit of the relevant Distribution Class as at the last business day of the month. The making of distributions is at the absolute discretion of UOBAM and that distributions are not guaranteed. The making of any distribution shall not be taken to imply that further distributions will be made. The Managers reserve the right to vary the frequency and/or amount of distributions. Distributions from a fund may be made out of income and/or capital gains and (if income and/or capital gains are insufficient) out of capital. Investors should also note that the declaration and/or payment of distributions (whether out of capital or otherwise) may have the effect of lowering the net asset value (NAV) of the relevant fund. Moreover, distributions out of capital may amount to a return of part of your original investment and may result in reduced future returns. Please refer to the Fund’s prospectus for more information.
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