BEA Union Investment Management has launched a fund that aims to offer investors a high-quality bond strategy with reduced volatility and risk that can ride out potential market fluctuations while offering compelling income potentials.
The BEA Union Investment Global Quality Bond Fund will be distributed from September 10, with an IPO subscription period between August 26 and September 10.
The fund primarily invests in US treasuries and US dollar-denominated Investment-grade bonds spanning across developed markets, including the United States, Europe, Japan and Australia from an array of sectors, such as banks, financials, industrials and technology, media and telecommunications (TMT).
The portfolio is characterized by strong credit fundamentals, relatively low risks and a defensive nature, with the model portfolio having an average credit rating of A.
Since 2022, the US Federal Reserve has repeatedly raised interest rates, pushing short-term bond yields higher. Bonds with maturities below two years present the most appealing yields. The duration of the model portfolio is under one year, with the aim of capitalizing on higher income from short-term bonds.
"The global rate-cutting cycle will soon kick off as inflationary pressures steadily decline, dimming the allure of banks' savings rates. In response to investors seeking an alternative to interest income from banks, we are launching BEA Union Investment Global Quality Bond Fund,” says BEA Union Investment chief executive officer Janet Li.
“Riding on our core expertise in fixed income, and our seamless collaboration with our German parent company Union Asset Management, we are well-placed to capture quality income investing opportunities by allocating assets worldwide."
Li notes that economic situations and monetary policies across the globe are increasingly diverging. For instance, the European Central Bank has already lowered interest rates, whereas Japan, encouraged by the virtuous cycle of rising wages and prices, is just beginning its monetary policy tightening.
“These differing circumstances create varied investment opportunities across countries. In the face of a plethora of uncertainties, we believe global short-term bond strategies are defensive and offer alluring income, enabling risk-averse investors to capture investment prospects worldwide while achieving risk diversification," she adds.
Despite an impending shift in monetary policy, short-term bonds experience relatively lower price volatility because the asset class is less sensitive to rate movements and, as a result, less impacted by interest rate fluctuations. For the past five years as of end-May this year, the daily return of the ICE BofA 1-3 Year US Corporate and Government Bond Index hovered within the range of +/-0.5%, indicating limited volatility.
Another benefit of short-term bonds is their reduced credit risk, which decreases as the bonds approach maturity. "Due to the fact that it is easier to take the pulse of an issuer's near-term financial and operational health, the likelihood for any sudden deterioration in credit fundamentals is lower. Moreover, short-term bonds benefit from ample supply and demand, representing sufficient liquidity. Hence, the mark-to-market risk is lower," explains Pheona Tsang, chief investment officer of fixed income at BEA Union Investment.
With a 17-year track record, BEA Union Investment, a joint venture established by Hong Kong's Bank of East Asia and Germany's Union Asset Management, allocates assets worldwide and actively manages equities, bonds and multi-asset portfolios.
