The United Asian Bond Fund is focused on the financial sector and country diversification as a way to achieve returns at lower risk

Asian investment grade (IG) corporate bond funds are all the rage, given the yield pick up relative to US and European peers. But as always, it is important to track not just a fund’s return but also its volatility. This is particularly important in the case of IG bond funds because investors typically do not expect such investments to see large negative returns.  

Here are three key ways that the United Asian Bond Fund (the “Fund”) seeks to limit risk.

1. Country diversification

The Fund is actively managed and has a smaller allocation to Chinese and Korean bonds compared to its benchmark, the JACI Investment Grade Index (the “Index”). Spreads for Chinese and Korean bonds have tightened this year, making them relatively more expensive. Instead, the Fund is well diversified across the Asia and ASEAN region, such as Indonesia and Malaysia.

Fig 1: Geographic allocation (%): United Asian Bond Fund vs Index

^{Source: Bloomberg, UOBAM, based on the JACI Investment Grade Index, as of 31 July 2024}

2. Sector focus

Sector-wise, the Fund limits its risk by having a relatively large exposure to financial institutions across various countries. We believe that financial sector companies are more stable as they are generally owned or well-supported by their respective governments.

In addition, this year the Fund is focused on bonds with a relatively high credit spread. Given our belief of a sanguine macro environment in Asia and globally, the Fund aims to select credits that have a meaningful credit improvement story and can benefit from spread compression.

Fig 2: Sector allocation (%): United Asian Bond Fund vs Index

^{Source: Bloomberg, UOBAM, based on the JACI Investment Grade Index, as of 31 July 2024}

3. Average maturity

Thirdly, compared to its peer average of 4.3 years, the Fund has a slightly longer average weighted maturity of 4.8 years. While longer maturity bonds typically benefit more from easing rates, the impact has not been easy to predict this year, and the Fund is therefore avoiding taking significant duration calls.

Higher returns and lower volatility

The Fund’s more defensive positioning can be seen from its volatility and maximum drawdown relative to its peers.

Fig 3: United Asian Bond Fund: Yield, returns & risk vs peers, as of 31 July 2024

^{Source: Morningstar, UOBAM, as of 31 July 2024. Category refers to the Morningstar Asian Bond category.}

^{Performance as of 31 July 2024 on a SGD basis, based on the SGD Dist share class. Performance does not include the effect of charges such as sales or subscription fees, which an investor might or might not pay. Past performance is not necessarily indicative of future performance.}

For example, over the past three years, the Fund’s volatility, as measured by its standard deviation, was 4.8 percent per annum. The average for its peers in the same Morningstar category was higher at 5.3 percent. Similarly, the Fund’s maximum loss over the course of the past three years was 19.4 percent, compared to the 23.2 percent average for funds within the same Morningstar category.

Given its more defensive stance, the Fund’s yield to maturity is marginally below that of its peer group, but this is compensated by the slightly higher returns year-to-date.

Fund details