Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Robust fundamentals and a relatively stable macro environment in the region create an interesting investment case for investors to opt for Asia’s debt market. In the current volatile global market conditions and the interest rate cycle, investors are looking for a strategy that offers a stable balance between risks and returns. Hence, investing in Asian dynamic bond funds could be a way to do that.
The Asian Development Bank (ADB)’s September 2023 Bond Monitor highlights the prospects of the Asian bond markets. It says “As major advanced economies continued with monetary tightening to address inflation, bond yields in advanced economies rose, which pushed up bond yields in most emerging East Asian markets.”
For dynamic bond funds, the fund manager has the flexibility to decide the duration of a portfolio based on interest rate changes. This allows the fund to navigate extreme return fluctuations due to abrupt interest rate changes and offer steady returns. Hence, investors can remain invested for a longer period without worrying about the interest rate cycles.
In case of a rise in interest rates, debt funds usually experience a decline in returns. In this case, a fund manager can increase allocations to shorter-term debt securities because they would be less sensitive to interest rate changes. On the flip side, in a falling interest rate cycle, the debt fund earns good returns. So, when the fund manager expects the rates to go down, he would shift to long-duration bonds, as they react the most to changes in interest rates.
A dynamic strategy usually opts for an asset-allocation approach where it invests in high-yield bonds, government bonds, emerging-market sovereigns, and investment-grade corporate debt. They also actively manage currency exposure to generate additional returns.
Ninety One – Asia Dynamic Bond Fund
One way to participate in Asia’s growth prospects is through dynamic bond funds. For this article, we focus on the Ninety One Asia Dynamic Bond Fund* managed by Alan Siow and Victoria Harling. The objective of the fund is to provide income with the opportunity to grow the value of the investor’s investment over the long term.
It is an actively managed fund that uses the JP Morgan Asia Credit Index as a benchmark for comparing risk and return and monitoring performance. However, the fund doesn’t replicate the index.
Both the fund managers are highly experienced in handling debt securities. Harling is Nintey One’s Head of Emerging Market Corporate Debt, she brings an overall industry experience of 26 years to the table. Co-Portfolio Manager Siow has 19 years of industry experience. He is part of the company’s Fixed Income team with responsibility for Emerging Markets Investment Grade Corporate Debt and All China Bond.
Launched on 26 January 2021, the Ninety One Asia Dynamic Bond Fund invests mainly through a diversified portfolio consisting of bonds issued by Asian governments, institutions, or companies and related derivatives. The fund follows a sustainability approach and promotes environmental and social characteristics in line with Article 8 of
the EU Sustainable Finance Disclosure Regulation (SFDR). It only invests in borrowers that meet the standards of the investment manager’s proprietary sustainability framework.
As of 29 September 2023, the fund’s AUM stands at $53.17 mn. The minimum initial charge for the fund (subscription fees) is 5%, while the management and administration charges amount to 1.39%. The minimum investment is 3,000 USD.
The Ninety One Asia Dynamic Bond Fund has clocked in load-adjusted returns of 6% over the past year (from 30 September 2022 to 30 September 2023), compared to 4.61% of the benchmark.
The fund has 113 bond holdings, with an average credit rating of BBB. Average maturity (years) stands at 4.5 and the yield to maturity is 6.43%.**
Around 30.5% of the fund is invested in bonds with maturity in the range of 5 – 10 years, followed by a 30.4% investment in the maturity range of 1 – 3 years. Other than that, 26.5% of the holding belongs to the duration between 3-5 years.**
In terms of geographical allocation, 21.7% of the allocation is in Indian markets while 14.3% are in Indonesia, followed by China (12.8%; Offshore and/or Mainland), Hong Kong (10.3%) and Thailand (7.5%).**
The top holdings of the fund include Philippine Government International 3.229 Mar 29 27 (2.5%), Greenko Solar Mauritius Ltd 5.95 Jul 29 26 (2.1%), and Adani Electricity Mumbai Ltd 3.949 Feb 12 30 (1.9%).**
* For this article, we concentrate on share class A Acc USD
** As of September 30, 2023
