S.E.A. Asset Management Singapore Pte. Ltd.
Singapore bonds – the Alternative ‘high yield – low volatility’ investment opportunity
DGAP-News: S.E.A. Asset Management Singapore Pte. Ltd. / Key word(s): Funds/Bond ISIN LU1138637738 / ISIN LU1138637225 – Bloomberg: SEAHYBA:LX / SEAHYBB:LX / SBQ7:GR Low Yield in a High Volatility World. At the end of October 2016 the gross yield of the S.E.A. Asian High Yield Bond Fund stood at stunning 7.7% while the average duration of the fund portfolio was only 1.35 years. In a world where historically low interest rates continue to flush the market with liquidity, low yields are still challenging investors in search of returns on their cash and even capital protection where rates have turned negative. Record amounts of liquidity injected into markets by central banks have led to unprecedented spikes in volatility and artificially long periods of ultralow volatility making risk adjusted returns more unpredictable for most asset classes. One corner of the market that massive amounts of liquidity have so far shunned and bypassed are unrated bonds issued by small and medium size companies that have low trading volumes – Asian short duration high yield bonds. .and the High Yield Low Volatility Opportunity A fund holding a diversified portfolio of Asian short duration high yield bonds that offers daily liquidity is the right vehicle for investors to gain exposure to high yields with low volatility in particular if most of the bonds are unrated and less liquid than larger higher rated issuers. The combination of higher yield and lower volatility delivers a superior risk/reward ratio versus peer bond funds that follow mainstream Asian high yield bond index benchmarks like everyone else. Value in Unrated Bond Unrated bonds denominated in Singapore dollars are typically issued by small or medium sized companies that operate regionally. The issuers target only local investors who are usually familiar with their business. Due to a lack of international investors for Singapore dollar denominated issues, let alone small issues of sometimes only 50 mln Singapore dollars these issuers do not bother to obtain a credit rating by the major rating agencies like Moody’s or Standard & Poor’s or Fitch. Unrated hence doesn’t automatically imply a bond is untrustworthy. Quite a number of the issuers have solid cash flows and balance sheets making their often very short tenors very attractive. Some unrated bonds are from established businesses with stable credit metrics. Key is to identify these bonds that have the ability to repay at maturity or even better call or tender early. Due to the low interest rate environment in Singapore the currency risk can easily be hedged away versus the fund reference currency at almost no extra hedging cost. The most interesting yields are sometimes found in bonds with a maturity profile of 1-3 years. It is in this tenor where the quarterly financial results published by the issuers enable fundamental analysts to have maximum visibility on order books, cash flows, receivables and ultimately the ability of the bond issuer to repay their debt upon maturity. Public listings of issuers or credit rating based research obsolete in this niche. In the past 2 years large fund houses have seeded Asian short duration bond funds and Asian high yield bond funds, both segments for which benchmark indices exist. The segment of Asian bonds that are both high yield as well as short duration will be off limits to them for the foreseeable future. Singapore Dollar Bonds Although there have been a number of defaults in Singapore in particular from shipping and oil & gas related companies totalling 785 mln Singapore Dollars there have also been early redemptions amounting to 4.8 bln Singapore Dollars showing strong credit profiles. As of the middle of October a total of 17.4 bln Singapore Dollars have been redeemed by their issuers. Defaults from the oil & gas related sector although they should have not been entirely unexpected led to a sell-off across the board in Singapore Dollar denominated debt. This has led to buying opportunities in selected quality issuers who sold down in sympathy but whose low bond prices and high yield are largely unwarranted. The Flawed Industry Opportunity for Investors The Liquid Alternative The S.E.A. Asian High Yield Bond Fund is completely unconstrained and benchmark agnostic. This allows the fund manager to invest in lesser known bond issuers with good debt repayment abilities. The fund focuses on under researched and under-owned high yielding bonds. As these securities tend to be less liquid than the broader market so the portfolio tends to be more diversified than that of our competitors who must take larger bets to outperform their benchmark indices. The Luxembourg UCITS SIVAC structure of the and daily NAV provides investors assurance of liquidity and regulatory oversight. The fund is the only one of its kind investing in Asian short duration high yield bonds. Fund managers are Gallen Tay and Alexander Zeeh of S.E.A Asset Management in Singapore. Custodian and administrator are DZ PRIVATBANK S.A. and IPConcept (Luxemburg) S.A. The SICAV is audited by KPMG Luxembourg. In Q3 2016 the S.E.A. Asian High Yield Bond Fund A was listed on the Frankfurt and Berlin Stock Exchanges. About S.E.A. Asset Management Pte Ltd MEDIA CONTACT: For more information, visit S.E.A. Asset Management on the internet IMPORTANT INFORMATION Concerning the distribution in Switzerland to qualified investors place of jurisdiction is Zürich. Any subscription of shares must be based on information given in prospectus, KIID, and annual report of the fund. Shares are not available for sale in any state or jurisdiction in which such sale would be prohibited. Investors should only rely on the fund’s offering documents when making a decision on whether to invest in the fund. Shares may not be offered, sold or distributed in the United States or to US persons. The fund is not authorised or recognised by the Monetary Authority of Singapore and shares in the fund are not allowed to be offered to the retail public in Singapore; and any written material issued in connection with the offer is not a prospectus as defined in the Securities and Futures Act and, accordingly, statutory liability under the Securities and Futures Act in relation to the content of prospectuses would not apply. The views expressed herein are those of the manager at the time and are subject to changes. All information and opinions expressed in this material were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. The price of shares and foreign currencies may go down as well as up and the price will depend on fluctuations in financial markets outside S.E.A.’s control, as a result an investor may not get back the amount invested. Past performance is not indicative of future performance. Reference to a security is not a recommendation to buy or sell that security. Holdings and allocations are subject to change. Historic data may be subject to restatement from time to time. Basis for applications for shares in the fund must always be the current Prospectus, Key Investor Information Document (KIID), Annual/Semi-annual Report or Articles of incorporation.
2016-11-25 Dissemination of a Corporate News, transmitted by DGAP – a service of EQS Group AG. |