Fixed Income  
Top and Bottom Fixed Income Funds 3Q2017: Bullish Aussie Gives AUD Exposed Funds A Boost October 27, 2017
Top and Bottom Fixed Income Funds 3Q2017: Bullish Aussie Gives AUD Exposed Funds A Boost
Author : iFAST Research Team


 Top and Bottom Fixed Income Funds 3Q2017: Bullish Aussie Gives AUD Exposed Funds A Boost

Market Performance in 3Q 2017

Over the third quarter of 2017, emerging market bonds outperformed most other fixed income segments, driven by investors demand for higher yields. Fundamentals were also generally healthy despite a downgrade in China’s sovereign credit rating from AA- to A+ by S&P Global Ratings due to concerns about the country’s rising debt levels. In month of August, bond yields moved lower because of safe haven buying due to the geopolitical tensions between North Korea and US and it was reversed in September as investors’ concerns eased.

On the monetary front, healthy economic outlook combined in the US have allowed the Federal Reserve to commence the balance sheet reduction at a rate of USD 10 billion a month from October. Looking across to Eurozone, ECB hinted that it is looking forward to taper its quantitative easing in 2018.

Within the bond segment, returns delivered by the global bond segment as represented by JP Morgan Global Aggregate Bond Index, recorded a tepid retreat of -0.1%. Meanwhile, Asian bonds (Credit Suisse Asian Bond Index), edged down by -0.4% while EM Bond segments, as represented by JP Morgan EMBI Global Total Return Index gained 0.6%.

Overall Fund Returns in 3Q 2017

As of 30 September 2017, there are 91 fixed income funds on our platform, with 90 of them having a full quarter performance in 3Q2017. Out of the 90 funds, 75 (83%) of them recorded positive returns while the remaining funds reported losses over the quarter. On a year-to-date basis (as of 30 September 2017), the average performance of bond funds on our platform gained by 3.5% and were up by 0.8% on a quarterly basis.

[All stated returns are total returns inclusive of any income or distribution reinvested and are in MYR terms unless otherwise stated]

Figure 1: 3Q2017 Returns Distributions For Bond Funds

Top Performing Fixed Income Funds

Table 1: Top 10 Performing Fixed Income Funds

Ranking
Fund Name
Category
3Q17 return (%)
YTD Return (%)
1 Eastspring Investments Global Target Income Fund
Global-General
3.6
8.8
2 Eastspring Investments Asian High Yield Bond MY Fund - AUD Hedged
Asia excluding Japan-High Yield
2.4
6.5
3 Amundi Bond Global Emerging Blended Fund - MYR Class
Emerging Markets-General
2.4
N/A
4 Eastspring Investments Asian High Yield Bond MY Fund - MYR Hedged
Asia excluding-Japan-High Yield
2.1
4.4
5 RHB Asian High Yield Fund - AUD
Asia excluding Japan-General
2.1
7.8
6 Affin Hwang World Series - Global Income Fund - AUD Hedged
Global-High Yield
1.9
8.1
7 Maybank Financial Institutions Income Asia Fund
Asia excluding Japan-General
1.9
7.4
8 RHB USD High Yield Bond Fund - MYR
US-High Yield
1.8
5.8
9 Affin Hwang World Series - Global Income Fund - MYR Hedged
Global-General
1.7
6.2
10 Affin Hwang Select AUD Income Fund - AUD
Australia-High Yield
1.5
6.9

Source: Bloomberg, iFAST Compilations. Data as of 30 September 2017. Returns in MYR terms with any income or distribution reinvested.

Bullish Aussie Gives AUD Exposed Funds A Boost

Over the third quarter, the decent performance in fixed income funds with AUD exposure was mainly driven by the strength of Australian Dollar. A stronger labour market, firming business investment and a pickup in GDP growth have portrayed a positive economic outlook while some third quarter data has also been positive. As a result, these feed into expectations for the RBA to be more hawkish alongside the recovery in commodity prices, leading to a rise in AUD.

The strength in Australia Dollar has boded well for the funds with AUD exposure as a whole. Eastspring Investments Asian High Yield Bond MY Fund – AUD Hedged clocked gains of 2.4% in a mere 3-month period (see Table 1). Despite that Asian bonds have posted minor losses over the quarter as described above, some of the Asian bond funds that have AUD-hedged class on our platform were also among the beneficiaries of a strengthening AUD.

Figure 2: Currency Movement in 3Q2017

Bottom Performing Equity Funds

Table 2: Bottom 10 Performing Fixed Income Funds

Ranking
Fund Name
Category
3Q17 return (%)
YTD return (%)
81 Templeton Global Total Return - USD
Global-General
-0.2
-1.2
82 CIMB-Principal Preferred Securities Fund - USD
Global-General
-0.5
N/A
83 AMB LifeStyle Trust Fund Today
Malaysia-Equity Exposed
-0.6
4.5
84 CIMB-Principal Preferred Securities Fund - MYR Hedged
Global-General
-0.7
N/A
85 United Income Plus Fund
Asia excluding Japan-Equity Exposed
-0.7
4.3
86 AmConservative
Malaysia-Equity Exposed
-0.8
5.9
87 Affin Hwang AIIMAN Global Sukuk Fund - USD
Global-General
-0.9
-2.3
88 Affin Hwang World Series - US Short Duration High Income Fund - USD
USD-High Yield
-1.0
N/A
89 Affin Hwang World Series - US Short Duration High Income Fund - MYR Hedged
USD-High Yield
-1.1
N/A
90 Affin Hwang AIIMAN Global Sukuk Fund - MYR
Global-General
-2.5
-4.5

Source: Source: Bloomberg, iFAST Compilations. Data as of 30 September 2017. Returns in MYR terms with any income or distribution reinvested.

A Bumpy Global Bond Segment

Over the quarter, USD weakness took a toll on the Global Bond segment which erased the 1.7% gain in USD term in the JP Morgan Global Aggregate Bond Index. Through the Fed’s new balance sheet reduction programme, we can see policymakers in US are still prudent and constantly communicating with the market participants their expectations and allowing time for adjustments to take place. However, at this instance, we see Fed is still accommodative on its monetary policy stance. On a side note, this has also been a blessing to the Emerging Markets Bond segment since investors are in search for higher yields.

As such, within the bottom performing fixed income funds, funds that invest in USD-denominated assets saw their performance being negatively affected by the weak USD.

Malaysia-Equity Exposed Funds Dimmed

Following by a positive performance of 9.1% in the first half of 2017, Malaysia equity market as represented by FBM KLCI Index went sideway with a tepid gain of 0.4% and ended the quarter at 1755.58. While the Malaysian economy still paints a positive picture, the modest stock market performance was attributable to the disappointment in 2Q2017 quarterly earnings report in the middle of a rising geopolitical tensions in Korea Peninsula. With corporate earnings dimmed in 2Q2017, the Malaysia equity markets have gone through a moderation in its performance. As a result of a relatively weak performance in the Malaysia equities market, two fixed income funds with exposure to local equities posted a sluggish performance over the quarter, making their appearance in the bottom performing funds list this time around.

Conclusion:

In the backdrop of tightening monetary policy, we remind investors to be cautious on the risk of rising interest rates and advise investors to underweight their exposure in longer duration fixed income funds which might be the victim to rising yields. For investors who share the same view as us, they can look into short duration bond fund which is far less interest rate sensitive and providing better alternative for investors who are seeking protection from the volatility and uncertainty seen in financial markets.

With regards to asset allocation, we opine that fixed income will remain relevant in investors’ portfolio and continue to advocate investors to have a diversified asset allocation (see adjustments to our asset allocation) ) between equities and fixed income with respect to their risk profile.


This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Fundsupermart.com. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.