The annual Morningstar Singapore Fund Awards are designed to help investors identify the retail funds and fund houses that added the most value for investors within the context of their relevant peer group in 2015 and over longer time periods.
To help our readers better observe what makes a winner fund, we asked the winning teams to shed lights on some major changes they made to the portfolio over the course of 2015, how various risks affect their investment decisions and their investment team structure, etc.
Best Asia Bond Fund -- ABF Pan Asia Bond Index Fund
Key Stats
Inception Date: 7 July, 2005
Morningstar Rating (as of 2016-02-29): 
Total Net Assets (Mil, as of 2016-01-31): 2,860.02 USD
Fund Benchmark: Markit iBoxx ABF Pan-Asia TR USD
M: Morningstar R: Ray Chan, Vice President and Head of ETF Business Development, Asia ex Japan at State Street Global Advisors
M: Could you highlight any major changes you made to the portfolio over the course of 2015? Were there any particular holding(s) that drove the fund’s performance for the year?
R: PAIF is a passively managed Asian fixed income fund, aiming to track the performance of the Markit iBoxx ABF Pan Asia Index. The fund employs a stratified sampling approach to match the index's characteristics and returns through investing in a well-diversified portfolio that represents the index.
M: What is your outlook for 2016 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
R: Investors should remain invested in a broad and diversified manner amidst the challenging market environment. ETFs invest in a basket of securities and investors can effectively reduce their risk by diversifying their portfolio into different securities.
M: Can you comment on the macro risks facing the global economy, including the US rate hikes, weaknesses in commodity prices and the significant headwinds facing the emerging world? How do these risks affect your investment decisions?
R: Our base case for 2016 is that investors should be prepared for more of the “low and slow” growth that has characterized the global economy since the financial crisis. Despite the very volatile markets at the beginning of the year, we don’t think the growth story is over, but investors do need to be more selective. Rather than buy the equities market with broad exposures, investors should target specific regions, sectors and industries. In fixed income, we favor the more credit-sensitive areas of the bond markets for yield and some potential rising rate protection.
In longer term, we think the structural story for Asian fixed income remains intact. The drivers of Asian bond market returns are: higher yields, solid economic fundamentals and possibly higher allocations to this asset class.
A survey of Asian local market yields quickly reveals that Asian government bonds trade at a positive spread versus US bond yields. For example, Indonesian 10-year government paper was mostly priced at over 7 per cent, while Malaysia and Philippines generated yield of nearly 4 per cent. And this is despite the fact that these Asian markets are rated investment grade by the international rating agencies.
When we consider the fact that Asian economies are still growing at a premium relative to the developed world, the comparative attractiveness of the region class becomes clear. According to the IMF’s “World Economic Outlook Update” published in January 2016, China is expected to grow at 6 per cent or above this year and next year, while ASEAN-5 is expected to grow at around 5 per cent. In contrast, the developed markets of Euro zone and Japan are battling deflation, while the United States is just expected to grow at 2.1 per cent this year and next year.
Considering the US rate hikes, Asian bond yields are highly correlated with US bond yields, we believe that potential further rate hikes will be a headwind for the asset class. However, the reality is that there are many other factors that are in Asia’s favour and therefore, that should mitigate the short-term challenges from the US event. Asia looked well equipped to weather rate hike cycle as most had positive current balances and reserves as a percentage of imports looked sufficient.
M: How is your investment team organized? Have there been or do you anticipate any changes to the investment team or structure over the course of the year? Do you anticipate adding to the team in the near future?
R: PAIF is managed by the experienced and stable investment team at SSGA. The SSGA Fixed Income Team in Singapore covers the following strategies:
- Selected to manage PAIF in 2005
- Asian local currency bonds since 2000
- Global government and inflation-linked bonds index strategies since 2008
Managers on the SSGA Fixed Income Team in Singapore have more than 10 years of experience on average:
| Kheng-Siang Ng, CFA, CAIA |
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| Esther Koon, CFA |
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M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
R: We will continue to focus on and deliver the following key values to our clients for our ETF products.
Rigorous Process
ETFs are designed to meet the high standards of professional investors. For more than 20 years, we have partnered with many of the world’s largest, most sophisticated investors and financial intermediaries to help them target specific pockets of opportunities.
Physically Backed
All of our ETFs are physically backed, providing a simple, transparent way to access each market segment.
Local Knowledge, Global Reach
Our long presence in Asia Pacific and proven track record of partnership with local investors translate to an intimate knowledge of the market. For instance, we launched the first ETF in Asia ex-Japan, the Tracker Fund of Hong Kong. Together with our global network, we bring to bear our collective experience, creativity and objectivity to answer investors’ investment challenges and realize their goals — even in the most demanding investment conditions.
Click here to read other winners' Q&A.
