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Asian market fixed income ETFs saw 'solid returns' over past 12 months: SGX

ASIA market fixed income ETFs (exchange traded funds) produced "solid returns" over the past 12 months, according to a research note by the Singapore Exchange (SGX) last Friday. 

Fixed income ETFs are a type of listed funds designed to track the performance of a specific bond market index.

There are five fixed income ETFs listed on SGX that seek to replicate major bond market indices return across Asia and Singapore markets. According to the Singapore bourse, total fund size across these fixed income ETFs came in at S$1.4 billion in April 2019.

To illustrate, iShares JPMorgan USD Asia Credit Bond clocked a 12-month return of 8.5 per cent for its USD counter, and 10.4 per cent for its SGD counter; while iShares Barclays USD Asia High Yield Bond recorded a 12-month return of 7.1 per cent for its USD counter, and 9.7 per cent for its SGD counter.

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The differences in return between the SGD and USD counters are due to the fluctuation of exchange rates between the two currencies, SGX said. 

iShares JPMorgan USD Asia Credit Bond offers investors diversified exposure to debt instruments issued by sovereigns, quasi-sovereigns and corporates in the Asia ex-Japan region, with over 75 per cent of its underlying debt instruments rated BBB and above.

Meanwhile, iShares Barclays USD Asia High Yield Bond offers investors diversified exposure to high yield bonds issued by governments and corporates in the Asia ex-Japan region.

Furthermore, the strong performance of Asian bond markets is partly driven by investors looking beyond the US for opportunities, amid a pause in the Fed's interest rate hike, SGX said. 

It added that rotation into fixed income has seen the yields on 10-year US Treasury yields decline from 2.7 per cent at the end of 2018, to 2.4 per cent now. 

"While the Fed Reserve's patient view on interest rates in the year thus far has contributed to the lower yields, modest declines in global equities over the past two weeks have corresponded with converse gains in US Treasuries.

"With more normalised interest rates in the US and the region compared to past years, more traditional rotations between fixed income and equities have been observed recently. This has also extended to ETFs that track fixed income markets," SGX explained. 

In addition, the inclusion of China bonds into the Bloomberg Barclays Global Aggregate Bond Index has also contributed to the demand for Asian bonds by global investors. The iShares Barclays USD Asia High Yield Bond, for instance, has over 60 per cent allocation into China's bond market. 

Separately, the ABF Singapore Bond Index Fund ETF - which tracks the Singapore government and quasi-Singapore government entities AAA-rated bonds - has grown its asset size from S$322 million at the end of 2011 to S$802 million in April 2019, SGX noted. 

Over the past 12 months, the ABF Singapore Bond Index Fund ETF recorded a total return of 4.7 per cent, while its five-year return annualised at 2.2 per cent.

Said SGX: "Its underlying iBoxx ABF Singapore Bond Index generally perform well during periods of difficult market conditions. Due to its AAA credit rating and the strength of the Singapore dollar, Singapore government bonds are perceived as a safe haven asset during market distress."