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Nikko AM offers new SGD corporate bond ETF
THE first exchange traded fund (ETF) to invest in Singdollar-denominated corporate bonds will be listed here on Aug 27, offering retail investors a way to get "bite-size" exposure to high-grade credit issued by local companies and statutory boards.
The Nikko AM SGD Investment Grade Corporate Bond ETF will replicate a basket of bonds tracked by the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index, which has a current yield to maturity of 3.2 per cent, Nikko AM said.
The fund's total expense ratio will be capped at 0.3 per cent per annum for the first three years.
The ETF manager, Nikko Asset Management Asia, has an AUM (assets under management) target of S$50 million for the fund. The Business Times understands that the Monetary Authority of Singapore (MAS) is a seed investor.
Nikko AM declined to confirm this, but Eleanor Seet, its president and head of Asia-ex-Japan, told BT last Friday: "This is very much in line with a lot of the strategic initiatives that the MAS has always had in terms of growing the bond market locally ... Anything that broadens, deepens the liquidity and breadth of the local bond market is so important."
The MAS has, for a long time, been looking at ways to open up the Singdollar bond market to more retail investors. Recent initiatives include the bond seasoning framework and exempt bond issuer framework, which lower the costs for issuers to sell bonds to retail investors, although their impact has been limited.
Ms Seet added: "To the extent that an investor is looking for excitement in terms of return then this ETF doesn't have that sex appeal. But if anybody is looking for a high quality, long-term holding, this fulfils that."
Wholesale bonds, which the Nikko AM SGD Investment Grade Corporate Bond ETF invests in, are generally traded over-the-counter (OTC) instead of on a centralised exchange, so liquidity is not guaranteed.
But the underlying index's focus on investment-grade, large-cap bonds (issue size of around S$300 million) will mitigate some of the liquidity risks, said Bertram Sarmago, principal portfolio manager of the new ETF. The ETF will not hold high-yield bonds.
As for secondary market liquidity, the ETF units will be traded on the Singapore Exchange, with Flow Traders Asia and Phillip Securities lined up as the designated market makers.
The initial offer period is from Monday to Aug 17 noon. Each ETF unit is priced at S$1, with a minimum lot size of 100 units. In contrast, most Singdollar corporate bonds trade at a minimum lot size of S$250,000, and are available only to accredited and institutional investors.
The ETF will pay a dividend once a year, based on the coupon collected from the underlying bonds. Currently, the index comprises 102 bonds from 45 issuers, with an average coupon yield of around 3 to 3.5 per cent, said Mr Sarmago.
Most have a maturity between one and five years and the index has an average duration of 4.7 years.
The exact constituents of the iBoxx index is proprietary to IHS Markit. But top issuers will include the Housing Board, DBS Group Holdings and Temasek Holdings.
In terms of weight, currently 22 per cent of the bonds in the index are not rated, including names like Singapore Airlines and the Land Transport Authority. Mr Sarmago explained: "iBoxx has an implied credit rating methodology based on current pricing. That determines whether an issuer is investment grade or not."
Phillip Yeo, Nikko AM's international head of product development and management, noted that the ETF offers a better yield than fixed deposit rates, and is "useful as a tool to build a diversified multi-asset portfolio".
For now, the Nikko AM SGD Investment Grade Corporate Bond ETF is not included under the CPF Investment Scheme. It is the second Singdollar bond ETF to be launched here.
The ABF Singapore Bond Index Fund, which invests in Singapore government bonds, has grown to an AUM of S$749 million since its listing in 2005. It trades at an indicated yield of 2.31 per cent, based on the last distribution of S$0.0261 per unit in January.