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Singapore
United Kingdom
Asia’s high yield (HY) bond market has seen rapid growth over the past decade and strengthened its position as an integral component of the emerging market high yield universe. According to Goldman Sachs Asset Management (GSAM), the Asia High Yield bond market has surged by over 100% from 2017 to 2022, crossing more than $236 bn in assets*.
Amid rising rates and volatility, investors consider Asian high yield bonds as an attractive value proposition. The asset class also offers advantages such as low-interest rate sensitivity as well as compelling yields. “Looking ahead, the asset class offers an unrivalled level of yield in a low yield world, and lower interest rate duration vs similar asset classes which provides resilience from rates volatility,” predicted GSAM.
Also, Axa Investment Management feels that stronger US growth could eventually support emerging markets through commodity demand. A significant US growth could also enhance its credit fundamentals, thus benefiting Asia’s high yield bond markets.
How can investors access the Asia high-yield bond market?
Amid growing investor interest in Asia high yield bonds and their attractive proposition, we look at two investment funds, both actively managed: the Goldman Sachs Asia High Yield Bond Portfolio and Axa World Funds – Asian High Yield Bonds.
Goldman Sachs Asia High Yield Bond Portfolio
The Goldman Sachs Asia High Yield Bond Portfolio invests in at least two-thirds of its net assets (excluding cash and cash equivalents) in below-investment-grade transferable fixed-income securities issued by Asian companies. These transferable securities include debt securities, primarily floating rate debt securities, as well as other debt issued by governments, their agencies and instrumentalities, and convertible debt obligations.
The fund, launched in August 2020, is managed by Salman Niaz, Head of Asian Fixed Income at GSAM, who has investment management experience of over 16 years.
The manager aims to identify issuers that are oversold relative to their fundamentals. It also picks issuers with a strong business model and the ability to withstand potential economic volatility.
Assets under management (AUM) stand at $411.57 mn**. The fund has 250 holdings, and in terms of sector allocation, the top five are represented by Consumer Cyclical (20.6%), Utilities (20.4%), TMT (11.5%), Transport (10.4%), and Financial (9.8%), as of October 31, 2023.
The top 5 holdings are, MGM China Holdings Limi 5.875% (2.7%), Vedanta Resources Financ 8.95% (2.4%), Mong Duong Finance Hold 5.125% (2.0%), Cas Capital No 1 Ltd 4% 12 Jul (2.0%) and Melco Resorts Finance L 5.625% (2.0%).***
In terms of geography, India makes up the biggest portion of the portfolio with 30.00%, followed by China (15.6%), Macao (14.7%), Indonesia (12.5%), and Hong Kong (5.0%).***
In terms of ratings, 39.9% of the fund’s underlying securities are BB-rated, while 29.0% are B-rated.***
Goldman Sachs Asia High Yield Bond Portfolio shows a calendar year performance of -13.8% in 2022. As of September 30, 2023, the cumulative performance of the base shares lies at -5.80% year to date, -20.24% since the fund’s inception and 10.53% for the past year.
GSAM charges a management fee of 1.25%, the actual total expense ratio stands at 1.50% and the maximum sales charge is 5.50%.
AXA World Funds – Asian High Yield Bonds
Launched in April 2016, this fund by Axa Investment Managers offers exposure to the Asian fixed-income market by investing a minimum of 70% of its net assets in transferable Asian debt securities over a medium term. These securities are issued by the government of Asian countries, corporations, public or private companies, and supra-national entities in hard currency-rated sub-investment grade i.e. rated lower than BBB- by Standard & Poor’s or Fitch or lower than Baa3 by Moody’s.
The fund is managed by Magda Branet, Head of Emerging Markets and Asia Fixed Income at AXA IM, who has investment management experience of 17 years.
The fund invests in securities that are part of the JP Morgan Asia Credit Non-Investment Grade benchmark index. The AXA fund is smaller than the Asia HY fund from GSAM, with $36.53 mn AUM as of November 29, 2023. In terms of sector allocation, the top 5 holdings of the fund represent Leisure (19.13%), Banking (17.89%), Utility (10.35%), Cash (8.07%), and 7.33% are not classified.***
The top 5 country allocations are the same as for the GSAM fund but with a different weighting. AXA also has the highest allocation in India (22.42%), but then Hong Kong follows (15.59%), Macao (13.86%), Indonesia (10.37%) and China (7.10%).***
In terms of ratings, 46.58% of the fund’s underlying securities are BB-rated, while 21.99% are B-rated.***
Axa World Funds – Asian High Yield Bonds shows a calendar year performance of -14.64% in 2022. As of November 26, 2023, it generated year-to-date returns of -1.12 and 10.65% over the past year and -10,20% since inception.
AXA charges a higher management fee of 1.74% and has an additional 3.0% entry cost and 0.59% transaction costs.
* as of 31 May 2022
** as of 30 September 2023
*** as of 31 October 2023
