Asked on 25 Oct 2019
I am building an investment portfolio with roughly 50% IWDA, 10% EIMI and 30% ES3. I am thinking of allocating 10% for a Bond component. Understand that for some CPF /SSB can also be the bond component. Taking that I am interested in getting Bond ETF, which one should I look into? ABF? Does iShares AGGU (US Hedged) make sense?
Some Options from SGX:
I will provide the ETF name and average yield to maturity. Do look up the issuer website/factsheet for more information on expense ratio and duration etc. In general, their expense ratio ranges between 0.20% to 0.50%
Investment Grade (A to AAA)
Xtrackers II Singapore Government Bond UCITS ETF (KV4) - 1.76%
ABF Singapore Bond Index Fund (A35) - 2.24%
Nikko AM SGD Investment Grade Corporate Bond ETF (MBH) - 2.91%
75% Investment Grade (BBB and above):
iShares J.P. Morgan USD Asia Credit Bond Index ETF (N6M/ QL2) - 3.80%
High-Yield (Below BBB):
iShares Barclays USD Asia High Yield Bond Index ETF (O9P/QL3) - 6.65%.
It's worth mentioning that investors may want to stay away from investing into a single high yield bond given the likelihood of default. iShares Barclays USD Asia High Yield Bond Index ETF would be a good alternative for investors to invest in high-yield bonds with subjecting themselves to a single counterparty risks. Historical track record of this ETF looks decent as well.
The smart investor knows that adding bonds play a very vital role in balancing your portfolio and as reliable income generators. You should definitely try Levereged bonds.
Here's something more elaborate.
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Below is a screenshot on the list of bond ETF on SGX that you can consider. You can click on the ETF screener and do a similar search. Thereafter you may want to click on their respective documents to find out more eg. what the ETF constitute etc. I think most were just updated in September. ABF & XT are generally a "basket" of government-related bonds. Nikko IG generally consists of corporate bonds like LTA, DBS, Temasek etc. that are usually not offered to retail investors. You can also consider SGS bonds or T-Bills but they are not that "liquid". Recent SSB rates are not that attractive but it does offer some flexibility. Do take note of the different fees etc. for each transaction and each ETFs (usually at the bottom of the product highlight sheet).
*Please do your due diligence.
It depends on what is your objective for your bond allocation.
If you are looking for an 'absolute safe' option, one that would act as a strong stabilizer in your portfolio, that going with ABF is a good choice. Singapore Government Bonds are the Fort Knox of bonds in my opinion. But note that the yield will not be fantastic.
AGGU is a fine choice as well. It is investing in investment-grade bonds across the world. Approximately 65% of its allocation is in government-related entities and the rest is in the commercial sector. The exposure to the commercial sectors should command a higher risk premium and therefore the potential of higher yield. This should up bump up overall fund's yield.
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