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PGI readies high yield fund in Hong Kong

As other firms warn on impending defaults, the Asian high yield fund gets approval for retail sale.

The Principal GIF Asian High Yield Fund received approval from the Securities and Futures Commission (SFC) on Monday, according to the regulator’s website.

The Ireland-domiciled product was originally launched in January this year and is currently available in European countries as well as in Singapore for accredited investors, according to FE Fundinfo.

The fund invests in Asian bonds with a focus on Greater China government and corporate high yield.

Six of the top ten holdings (together 12.55% of the fund) are invested in mainland-based property companies, according to FE Fundinfo. About half of the bonds in the portfolio are non-rated.

Year-to-date the fund is down about 6% (chart below).

Defaults coming

The timing for the product is against a background of enhanced risk.

Several firms have warned on imminent high yield defaults due to the coronavisus shutdown and plunging oil prices.

“There is no doubt that we will see more companies restructuring their debts and in some cases failing altogether and going into liquidation,” said M&G’s fixed income investment director Pierre Chartres, in a research note, referring to global high yield.

Warning specifically on Asian high yield is Endre Pedersen, CIO for Asia fixed income at Manulife Investment Management.

“We believe the current economic slowdown and lower energy prices could trigger a pickup in defaults among fundamentally weak firms within the Asian HY segment.”

However, Pedersen added that with the high risk comes high reward. Asian high yield corporate bonds on average currently offer a yield-to-maturity of 10%-11%, “the highest level since 2011. With careful bottom-up credit selection, we think it’s possible to earn attractive returns in this space”.

FSA contacted Principal Global, but a spokeswoman declined to comment.

The firm owns eight SFC-authorised funds in Hong Kong. In Singapore, it has 12 products for accredited investors, FE Fundinfo shows.

In Asia, Principal Financial Group also has an asset management joint venture with CIMB Group, one of Southeast Asia’s main banking groups.

The Principal GIF Asian High Yield Fund vs category average and benchmark since inception

Source: FE Fundinfo. In US dollars.

Part of the Mark Allen Group.