Manager of the United SGD Fund, Joyce Tan, tells us how expectations of a rate hike slowdown and China’s reopening will impact the fund’s performance this year.
Hello Joyce, please can you recap for us the United SGD Fund’s performance in 2022?
The United SGD (USGD) Fund finished the year at -2.31%, which is its only second negative return since 2008.
Notable detractors in the fund can be attributed to rising interest rates and widened credit spreads among Asian Investment grade credits. Notwithstanding, coupon income offset some of the negative returns.
We acknowledge that Asian credit had a challenging year in 2022 since Global Financial Crisis. This was driven by Fed rate hikes in the US, ramifications from the war in Ukraine, China’s adherence to Zero Covid Policy, severe and continuing downturn in the China property sector as well as regulatory risk in China.
But despite the challenging year, the fund maintained its track record with no instances of credit default.
How do you expect the United USGD Fund to perform in 2023?
While many of the 2022 issues remain risk factors in 2023, we may usher a better performance in Asia credit this year. This is because we are expecting a slowdown in rate hikes and a potential pause as a possibility. We believe the stabilisation in the rates will reduce volatilities in Asian credit.
We also believe all-in yield, which is the highest since 2009, will provide sufficient margin of safety against higher interest rates and wider credit spreads.
Finally, we think China’s economic and social reopening will help to improve investment opportunities and market sentiment. Even as the path towards living with Covid-19 and restoring normality to China economic and social activities will likely be uneven and choppy, the government’s direction appears set in our view.
Will you be making any major changes to the fund this year?
We think that short-dated bonds continue to offer good carry and risk-reward. With the interplay between higher level of interest rates and lower growth, or even recession risks, this creates a potential wide range of outcomes. Hence, we continue to maintain our preference for defensive positioning in quality credits with leading market positions of systemic importance, and in defensive sectors.
What is your advice to existing United SGD Fund investors?
Thank you for believing in us. We expect returns of the Fund to resume its positive trajectory this year.
Why should those not yet invested in the United SGD Fund consider doing so this year?
While fixed deposits and 6-month Monetary Authority of Singapore (MAS) Bills looks attractive now, investors need to have an eye to build wealth beyond the immediate short term. Given the recent sharp rise in interest rates, short duration fixed income instruments now provide an attractive level of yields.
As a result, the running yield of USGD Fund is about 4 to 5% currently and provides a good avenue for wealth building over a two to three-year investment horizon. Bond yields at this level provide similar returns to some traditional equities without the corresponding volatility.
Given Singapore’s inflation at 14-year high, it may be necessary for investors to consider investing to preserve their purchasing power. We believe bond funds can provide long-term enhanced returns by investing in undervalued bonds with attractive yield pick-up.
So, investing in a short duration fixed income fund like the USGD Fund may be a good way to offset inflation.
Please see the United SGD Fund page for more details, important notes and disclaimers.
This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOB Asset Management Ltd (“UOBAM”) and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise, and is likely to have high volatility due to the investment policies and/or portfolio management techniques employed by the Fund. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund's prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Applications for Units must be made on the application forms accompanying the Fund’s prospectus.
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