The funds, whose mandates are Asia Pacific and US investment grade bonds, with a focus on generating total return rather than delivering explicit income targets, gained SFC authorisation on 23 October, according to the regulator’s website.
The $176m Pinebridge Asia Pacific Investment Grade Bond Fund was incepted in February 2017, and is managed by Hong Kong-based Arthur Lau, who is also the firm’s head of Asia ex-Japan fixed income, and Singapore-based Omar Slim.
The mandate is to provide a stable return and long-term capital growth in investment grade bonds, predominantly US dollar-denominated and issued by Asia-Pacific firms.
The fund has generated three-year cumulative return of 16.34%, better than the average return (12.77%) of similar products available to Hong Kong retail investors, but underperforming its benchmark JP Morgan Asia Credit Investment Grade index (17.63%), according to FE Fundinfo.
Although its 4.88% annualised volatility over three years is higher than the 4.54% average for the the category, its Sharpe ratio (a measure of risk-adjusted returns) is also higher at 0.33 compared with 0.12, FE Fundinfo data shows.
The managers have overweight positions in financial and property credits, and are underweight sovereign issues, according to the most recent fund factsheet. The fund also has lower allocations to China and Indonesia bonds – which comprise the bulk of issuance in the region — than its benchmark, and has a big overweight to Singapore.
Top holdings are mainly perpetual bonds which trade to their earliest call date and include issues from China Huadian, CDB Financial and CRCC Chengan.
Lau has been a fan of Chinese state-owned enterprises, in particular, based on the expectation that they benefit from government support, especially those sectors considered to have systemic importance to the economy, such as utility providers.
In a call on 8 April, Lau also highlighted the relative value of Asian bonds, both historically and compared with other fixed income sectors, as well as noting the technical support provided by Asian investors’ “home bias”.
His fund has rallied 9.9% since the call, according to FE Fundinfo, so some of the upside potential has likely already been achieved. However, Lau could not be reached for comment prior to publication.
Other asset managers have been keen to promote products with a high yield focus in order to cater for perceived investor demand for income in an environment of low, zero or negative G3 government bond yields.
For instance, USB AM gained SFC authorisation to launch three high yield bond funds in Hong Kong last month.
Pinebridge Asia Pacific Investment Grade Bond Fund allocations
Pinebridge Asia Pacific Investment Grade Bond Fund vs benchmark and sector average
Source: FE Fundinfo. Returns in US dollars.
US investment grade
Concurrently with its Asia Pacific bond product launch, Pinebridge is planning to market its $291m USD Investment Grade Credit Fund.
It was incepted in October 2016, and is managed by the firm’s head of developed markets investment grade fixed income, Rob Vanden Assem, together with Dana Burns and Danny Zoba, who aim to maximise total return while preserving capital.
The fund has generated a 22.18% three-year cumulative return, almost 10 percentage points more than the average US dollar fixed income funds (12.77%) authorised for sale to Hong Kong retail investors, according to FE Fundinfo (figures for the fund’s Blomberg Barclays US Credit Index Total Return benchmark are unavailable).
However, it is also much more volatile than the sector average, with three-year annualised volatility of 8.54% compared with 4.54%, FE Fundinfo data shows.
Three-quarters of the portfolio is allocated to US issuers, in line with the fund’s benchmark, but there is a substantial overweight to financials (33.4% for the fund versus 26.1% for the index), according to the latest factsheet.
Pinebridge is part of Richard Li’s Pacific Century Group and was formed following PCG’s acquisition of AIG ‘s asset management operations in 2010. As of 30 June 2020, the firm had AUM of $104.4bn, according to its website.
