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Peaking interest rates to be ‘favourable’ for fixed-income strategies and income-generating assets: Manulife

The Edge Singapore
The Edge Singapore • 3 min read
Peaking interest rates to be ‘favourable’ for fixed-income strategies and income-generating assets: Manulife
The Manulife Global Fund – Sustainable Asia Bond Fund by Manulife Investment Management was one of the top-performing funds in 2023. Photo: Bloomberg
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The Manulife Global Fund – Sustainable Asia Bond Fund by Manulife Investment Management was one of the top-performing funds in 2023 for the Best Funds Awards 2024 by The Edge Singapore. Based on data by Morningstar, the fund was one of the top three performers under the Asia Fixed Income category.

Murray Collis, Manulife’s CIO, Asia (ex-Japan) in fixed income, and Alvin Ong, head of fixed income Singapore, attribute the fund’s outperformance to the firm’s “on-the-ground” proprietary credit research as well as its “well-resourced” team comprising 19 Asian credit analysts and global sustainable investing team.

“With Asian bond markets still developing and under-researched, we believe this provides us with an informational advantage over our peers and brings unique perspectives to our clients,” say Collis and Ong.

“In 2023, the fund’s positions in Singapore dollar (SGD) and Australian dollar (AUD) local currency credits, as well as US dollar (USD) Australian credits with strong sustainable attributes, outperformed and were notable contributors to relative performance,” they add.

During the year, the team also increased the fund’s exposure to investment-grade (IG) bonds to 85.7% from 82.1% and lowered its high-yield bond exposure to 13% from 16.8% before. According to Collis and Ong, the moves were made mainly to position the portfolio defensively amid credit events in China and negative incidents within the banking sector in the US and Europe.

That said, the firm is expecting to increase its exposure to high-yield bonds (excluding Chinese property) as they view carry to be the main driver for returns. At the same time, the credit spreads are likely to provide some buffer to any potential volatility, note the analysts.

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“In addition, we are looking to add some local market exposure in sovereign and supranational issuers with strong environmental, social and governance (ESG) attributes, such as Indonesia and India. These markets have strong fundamentals, favourable demographics, provide diversification and attractive risk-adjusted returns opportunities,” they continue.

As at Feb 29, the fund has a total size of US$104.37 million ($142.2 million) or HK$816.95 million. It has a yield to maturity of 6.34%. The fund’s average credit quality is BBB+ and its average coupon stands at 3.87%. As at the same period, the fund’s top five sectors are banks, government, communications, real estate and utilities. Its top five country allocations are South Korea, China, Indonesia, Hong Kong and Australia. Baa/BBB-rated products (49.8%), A/A-rated products (22.22%) and Aa/AA-rated products (11.56%) make up the top three products within the fund.

In 2024, Collis and Ong see a “favourable market environment” for fixed-income strategies and other income-generating assets, with interest rates likely to have peaked and with the US Fed and central banks looking to end their rate-hike cycle.

See also: PIMCO emerges as top winner with four winning funds across fixed income securities

Besides, the significant market corrections seen in 2021 to most of 2023 have created “attractive entry points” with higher all-in-yields for investors and as such, making the risk-adjusted return profile for fixed income assets “much more compelling” than before.

The global financial markets are also more likely to remain volatile this year amid key elections in Asia and the US on top of evolving inflation and monetary policies. On this, the analysts believe that “active management and global unconstraint strategies” will be “increasingly appropriate” for investors looking to navigate the potential market turbulence.

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