HEAD-TO-HEAD: HSBC vs JP Morgan

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The HSBC Asian Bond Fund follows the Markit iBoxx USD Asian Bond Index as its benchmark. The fund aims for a tracking error below 3% and duration within one year of the benchmark.

The investment process combines bottom-up credit selection with a top-down macroeconomic view.

The fund invests mostly in US dollar bonds. The allocation to local-currency debt is capped at 30%, but usually stays below 15%.

The portfolio held 85.5% in investment-grade and 9.2% in high-yield bonds as of 30 November 2016, the latest data available. The share of investment-grade bonds is higher than the category average (59.8%) and gives the fund a higher average credit rating of BBB, compared to the category’s average BB.

The fund had average effective duration of 5.05 years, higher than the sector’s average of 4.09 years.

The JPMorgan fund does not follow a benchmark. “It’s a very flexible strategy,” said Yew. “They try to seek out best opportunities and ideas in the Asian bond space.”

In addition to seeking alpha from sovereign debt, credit, local currency and interest rates, the fund has the flexibility to invest up to 25% in convertible bonds as well as cash.

The fund’s allocation to investment grade bonds was 64.2% and to high-yield bonds 18.0% as of 31 January 2017, resulting in the average credit quality rating of BB.

The fund’s effective duration, 3.06 years, was lower than the sector’s average. This makes the product less sensitive to interest rate movements than the HSBC fund.

The HSBC fund had a 49.8% allocation to China and Hong Kong bonds, 12.6% to Indonesia, 11% to India and 9.1% to Korea in February, according to the fund’s fact sheet.

While the JPMorgan vehicle does not disclose country exposures in its fact sheet, Yew estimates that it has more than 30% of assets invested in Chinese bonds.

China is the fund’s largest country allocation, reflecting the fund manager’s positive view on the property, infrastructure and consumer sectors. He steers clear, however, of steel and coal sectors, according to Yew.

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