The BEA Union Investment Asian Corporate Target Maturity Fund 2023 has a fixed investment period of about 3.5 years with a target maturity date of 23 May 2023. It aims to provide 41 monthly dividends, although payments are not guaranteed and distributions may be paid out of capital.
Like the most recent offering by Invesco last week, the BEA FMP will invest in US dollar-denominated Asian corporate bonds.
“Global monetary policies will remain accommodative and bond yields will stay low for a prolonged period of time, [so] investors will continue to look for yield enhancing investment strategies,” said Pheona Tsang, chief investment officer of fixed income at BEA Union Investment.
“Being one of the world’s highest yielding asset classes, Asian corporate bonds offer attractive investment opportunities,” she added.
BEA launched the first ever SFC-authorised FMP for Hong Kong retail investors in January 2019, and total assets under management for FMPs targeted at the territory’s retail investors have reached $1.5bn so far this year, according to FE Analytics data.
BEA’s second FMP will comprise a diversified portfolio of Asian corporate bonds, and Chinese property issues are likely to be the major component, along with large allocations to the financial services and industrials sectors, according to the fund’s brochure.
The expected portfolio yield is 4.9%, derived from a 52% exposure to investment grade bond and a 46% allocation to high yield bonds. Other FMPs launched this year typically have a 30% cap on non-investment grade bonds, so the BEA FMP has greater flexibility to move down the credit curve to generate income.
Nevertheless, the average credit rating of the fund is likely to be BBB-, according to the fund brochure.
“We believe that a fixed term maturity strategy on high quality Asian corporate bonds helps investors to capture the current wide credit spreads triggered by the macro headwinds and to lock in an attractive total yield,” said Tsang.
Tsang and her fixed income team will use a “buy-and-monitor” portfolio strategy, aiming to capture the current yield levels of the underlying bonds while providing active risk monitoring.
The FMP appeal
FMPs have gained in popularity among investors since the US Federal Reserve indicated at the beginning of the year that it would cut interest rates amid rising concerns about global growth, precipitating demand for products that aim to generate a reliable source of income for a specified time period.
Other fund managers that have introduced FMPs in Asia this year — either to retail or professional investors in Hong Kong and Singapore — include Aberdeen Standard Investments, Amundi, BNP Paribas, Eastspring and HSBC Global Asset Management.
Fixed maturity bond funds combine the benefits of a traditional bond fund with a fixed maturity date. Compared to direct investment in a few bonds by individual investors, a fixed-maturity bond fund brings in benefits of diversification with a large pool of bond positions across different markets and industries.
Investors are expected to receive the targeted periodic income from bond coupons regardless of the fluctuating bond prices, and being repaid their share of its net asset value when the fund matures. It should provide more certainty in terms of future cash flows and interest rate risk.
However, income, return and capital of FMPs are typically neither guaranteed nor protected – and the BEA fund brochure warns investors that such is the case with its FMP. There are also risks that investors may not recoup the original amount invested in the fund during the investment period as well as at the maturity date.
The BEA fund is only available for subscription from 21 October to 5 November 2019. The base currency is US dollar and it also offers other currencies share classes including Hong Kong dollars and renminbi (hedged).
BEA Union Investment Asian Corporate Target Maturity Fund 2023: Model Portfolio