Cary Yeung, Pictet Asset Management
The fund targets a distribution yield of around 5% at launch on 15 January, and will invest across a range of Asian investment grade and high yield corporate bonds “that targets income while avoiding concentrated credit risks”, according to a statement by the Swiss-based asset manager.
It is benchmark agnostic and adopts a bottom-up credit analysis process. Most of the portfolio’s income will derive from investment grade bonds (BBB- and above), and the rest from high yields credits.
The fund allocates a minimum of 60% to investment grade Asian corporate bonds, the maximum weighting to individual high yield issuers is 1% and it does not invest in either CCC-rated bonds of distressed debt, according to the statement.
“The region’s economic resilience and healthy investors’ demand, [means] we have witnessed promising growth in the [Asian credit] asset class in terms of market size, number of issuers and markets as well as duration and sector diversification,” said Cary Yeung, head of Greater China debt and manager of the fund.
The fund will overweight US dollar-denominated credits issued by Chinese companies, and Yeung “sees value” in mainland property developers with solid fundamentals and good access to domestic liquidity, as well as some Indonesian utilities and Indian infrastructure companies.
An indicative model portfolio sent to FSA, shows 60% exposure to China, 13% to India and 10% to Hong Kong. Top sector allocations are to property (27%), quasi-sovereigns (17%) and utilities (10%).
The portfolio contains 123 individual holdings with an average credit rating of BBB-, modified duration of 3.7 and a yield-to-worst of 4.1%.
Top holdings include LLPL Capital (a holding company with interest in Indonesian natural resources), Bank of China (HK), Chinese sovereign wealth fund Beijing State-Owned Assets Management, Joy Treasure Assets Holdings (a Hong Kong asset manager) and Town Gas Finance.
“Amid a lower-for-longer rate environment, it is getting increasingly difficult for investors to find real positive return. That is why we are launching an Asian credit strategy that hedges against financial repression by diversifying across high quality, decent-yielding corporate bonds in Asia,” said Junjie Watkins, Pictet AM’s chief executive officer for Asia ex Japan, in the statement.
ASIAN YIELD PREMIUM
Several asset managers, such as Blackrock, have promoted their Asian fixed income funds in recent months, emphasising the higher yields available compared with US and European bonds, as well as lower corporate default rates in the region.
Earlier this week, HSBC launched an Asian multi-asset fund that focuses on income generation, and includes a 52% allocation to Asia high yield bonds.
According to HSBC Global AM data, the current average spread for Asian high yield credit has narrowed to 679 basis points (bps) from the widest level of 1579 bps during the sell-off in late March, but still attractive compared with 369bps two years ago, and much wider than the current 386 bps for the ICE BofA US High Yield Index and 365bps for the ICE BofA European Ccy High Yield Index.
The Pictet Asian Bond Income Fund was approved for sale to Hong Kong retail investors by the Securities and Futures Commission in early December. Its IPO runs from 4 January to 15 January, and it will be distributed through usual retail channels and private banks, said a spokeswoman.
The product is the firm’s second Hong Kong-domiciled fund, with the first being Pictet Strategic Income, a multi-asset strategy.
In July, Pictet AM offered its Strategic Income Fund as its first northbound product under the Mutual Recognition of Funds (MRF) scheme.
Hong Kong-domiciled funds are only eligible for the MRF scheme one year after launch, and must also satisfy other operating criteria.
As at end June 2020, Pictet AM had $209bn in AUM, according to the statement.