After raising around $600m in July and August from FMPs with global bond mandates, Invesco has launched an Asian Bond Fixed Maturity Fund (2022)
The latest fund will invest primarily in US dollar-denominated Asian bonds (excluding Japan issues but including Australia and New Zealand issues) over a fixed investment period of 2.5 years from the close of the initial offering period on 29 October up to the fund’s maturity date on 28 April 2022, according to the offering document.
It is open for subscription from 14 October, and “the fund is Securities and Futures Commission (SFC) registered for sale to Hong Kong retail investors and under restricted registration in Singapore for distribution to accredited investors,” said an Invesco spokesman.
“We have more distributors for this fund compared to the last two global fixed maturity products,” he added, but declined to provide their names.
Income will be paid to investors on a monthly basis, and the fund’s implied annual distribution yield is 3.6%, which is lower than the yields on FMPs launched as recently as the start of this month. Aberdeen Standard Investments issued an emerging market FMP to Singapore retail investors with an indicative yield of 4%-to-4.2%, yet with the same average credit rating of BBB- as expected for the Invesco FMP.
A $1.8bn FMP launched by Credit Suisse at the beginning of the year had a 4.96% yield, but since then rates on new products have fallen along with developed market government and corporate investment grade bond yields.
The latest Invesco fund is the first FMP with an explicit mandate to invest in Asia bond issues.
“Asian US dollar bonds offer attractive yields and credit spreads compared with other major credit markets, while high yield bonds from Asian issuers have lower historical default rates than those of other high yield bonds,” explained Ken Hu, chief investment officer, fixed income, Asia Pacific at Invesco, who will be leading the team that will select and manage the product’s portfolio.
The fund will hold a minimum of 70% of its bonds in investment grade credits, and an illustrative portfolio in its offering brochure suggests that around half the fund will be allocated to China issues, and its biggest sector exposure will be to financials, followed by property and basic materials.
Other fund managers that have introduced FMPs in Asia this year — either to retail or professional investors only — include Eastspring, HSBC, Amundi and BNP Paribas. Invesco has been an especially prolific issuer of FMPs in Taiwan, raising almost $2bn in assets so far this year.
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.
However, income, return and capital of FMPs are typically neither guaranteed nor protected – and the Invesco 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.