The territory’s Securities and Futures Commission (SFC) gave authorisation for the sale of the six FMPs to retail investors in Hong Kong, according to the regulator’s website.
“The first fund, the Invesco Asian Bond Fixed Maturity Fund 2021 – I, begins its initial offer period today, and will close on 20 July. The fund will be launched on 21 July,” a spokesman for the Atlanta-based asset manager told FSA.
Managed by Yifei Ding and Chris Lau, the product will invest at least 70% of its net asset value in Asian fixed income instruments denominated in US dollars, and a minimum of 70% in investment grade bonds, he added.
The fund invests primarily in Asia (ex-Japan) bonds whose maturities are roughly the same as the end date of the fund itself.
“Given the low rate environment…Asian bonds may be preferable given the region’s economic growth prospects, further room for monetary easing, historically low default rates compared to global peers, attractive valuations and more attractive risk-adjusted return profiles,” said the spokesman.
FMPs are marketed to investors who want more certainty in terms of future income streams and interest rate risk, especially when global markets are experiencing huge volatility.
They promise regular income for a specific time period. Compared to direct investment in a few bonds by individual investors, a fixed-maturity bond fund is meant to provide the benefits of diversification with a large pool of bond positions across different markets and industries.
They still carry risk, but unlike a regular bond fund, all principal is typically returned at maturity (if no defaults), plus investors receive income monthly or quarterly.
Invesco’s latest FMP comes after the firm launched the Asian Bond Fixed Maturity Fund (2022) in October last year, which was also the third FMP the firm has offered to Hong Kong retail investors in 2019.
“Invesco has raised around $900m in assets in FMPs for Hong Kong retail investors since June 2019. A fixed maturity bond fund offers investors the opportunity to lock in potential income over a defined time frame,” the spokesman said.
In March this year, EFG Asset Management also received approval from the SFC to launch the New Capital Wealthy Nations Fixed Maturity Bond Fund 2024.
Moreover, earlier this month, HSBC Global Asset Management filed an application with the Monetary Authority of Singapore (MAS) to launch the HSBC Global Investment Funds-Global Corporate Fixed Term Bond 2023-3.
The product has received approval from MAS, according to the regulator’s website.
In 2019, Hang Seng also introduced about 12 portfolios that only contained fixed maturity products and the bank plans to roll out more this year, FSA previously reported .
Indeed, FMPs gained widespread popularity among global investors last year on expectations of falling US interest rates and bond yields, precipitating a search for products that could generate a reliable source of income for a specified time period.
They typically deploy a “buy and maintain” approach to avoid re-investment risk, and aim to provide future cash flow security, offer low volatility and mitigate interest rate risk. But income, returns and capital are typically neither guaranteed nor protected.
Although no FMP managers have sounded an alarm so far, the biggest concern for investors will be the prospect of a pick-up in corporate bond defaults. A global recession, poor market liquidity and surging borrowing costs might threaten corporate solvency and cash flow.
For instance, in late March, Moody’s Investors Services noted that in the years following the global financial crisis to 2019, the volume of outstanding corporate debt issued by companies in Asia-Pacific doubled to $32trn.
The cash-crunch sparked by the Covid-19 pandemic might lead to a surge in bankruptcies across sectors, the ratings agency warned.