Flexible Asian Bond

A dynamic approach to generating consistent positive returns

In an investment world that often seems devoid of income without excess risk, Asian fixed income can offer a compelling proposition in both a relative and absolute sense. The Asian fixed income market is often at a different part of the economic, political and credit cycle to core western markets - this can include economic growth that surpasses most other regions. Asian fixed income offers a significant yield pick-up over similarly rated US and European peers.

 

Asian fixed income is a dynamic market opening up to a growing number of new investors. This market, which includes both US dollar and local currency issuers, is deep and investible with a market capitalisation of around US$1.74 trillion1 and an asset class that has grown more than four-fold in the last six years.

1.Source: Bloomberg. As at 31 December 2017.

Flexible Asian Bond strategy overview

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Key reasons to invest

  • Target return of 2.5% p.a. in excess of the index (gross of charges and tax) over the medium term.
  • Particularly well suited to today's fixed income markets with a flexible approach able to adapt to different phases of the economic cycle.
  • The construction of the Fund, which benchmarks to 50% Asian local currency bond index and 50% Asian hard currency bond index, allows flexible and opportunistic allocation to both markets.
  • Focuses on generating alpha from investments in government bonds, corporate bonds, currencies and curve positioning.
  • Fundamental research driven approach.
  • Extracting best ideas from Asian fixed income markets through extensive cross markets relative valuation analysis.
  • Firm-wide co-operation and debate strengthen investment conclusions.

Fund Objective

The aim of the Fund is to provide income with the potential to grow the amount you invested as well. The Fund invests at least two-thirds of its assets in bonds (which are similar to a loan and pay a fixed or variable interest rate) that are priced in US Dollars or Asian currencies other than Japanese Yen and issued by governments and companies in Asia (with the exclusion of Japan), or companies that have significant operations in such countries. When appropriate, the Fund may also invest in currencies, including non-Asian currencies. The Fund invests directly in these assets or by using derivatives. Derivatives are sophisticated investment instruments linked to the rise and fall of the price of other assets. The Fund makes active investment decisions.

 

Key risks

Investment risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested. Currency Risk: Where investments are made in assets that are denominated in multiple currencies, changes in exchange rates may affect the value of your investments. Investor Currency risk: Where investments in the fund are in currencies other than your own, changes in exchange rates may affect the value of your investments. Issuer risk: The fund invests in securities whose value would be significantly affected if the issuer either refused to pay or was unable to pay or perceived to be unable to pay. Political and financial risk: The fund invests in markets where economic and regulatory risk can be significant. These factors can affect liquidity, settlement and asset values. Any such event can have a negative effect on the value of your investment. Liquidity risk: The fund may hold assets that are not always readily saleable without suffering a discount to fair value. The fund may have to lower the selling price, sell other investments or forego another, more appealing investment opportunity. Inflation risk: Most bond and cash funds offer limited capital growth potential and an income that is not linked to inflation. Inflation is likely to affect the value of capital and income over time. Interest rate risk: Changes in interest rates are likely to affect the fund's value. In general, as interest rates rise, the price of a fixed rate bond will fall, and vice versa. Valuation risk: The fund's assets may sometimes be difficult to value objectively and the actual value may not be recognised until assets are sold. Short selling risk: Short selling intends to make a profit from falling prices. However if the value of the underlying investment increases, the value of the short position will decrease. The potential losses are unlimited as the prices of the underlying investments can increase very significantly in a short space of time. Investment in derivatives: The Investment Policy of the fund allows it to invest materially in derivatives.

Investment Process

Three-pronged Investment Approach in Conjunction with Three-step Asian Fixed Income Investment Process

FAB - Fig 1

Research / Debate

Converting Research into Implementable Trades

Repeatable and consistent Asian Fixed Income Investment Process

FAB - Fig 2

Implementation

Portfolio Construction

FAB - Fig 3

  • Converting the trade ideas into actual investments
  • Building a portfolio that reflects the best alpha opportunities generated by our key process meetings while reflecting risk considerations and client guidelines

Source: Columbia Threadneedle Investments.

Note: Above views are for illustration purposes only.

Clifford Lau

Clifford Lau joined the company in 2012 as Head of Fixed Income, Asia Pacific, based in Singapore. In this role he is responsible for managing Asian fixed income assets, developing new products in the area and promoting our expertise across the region.

Before joining, Clifford was Head of the Singapore office of Pramerica Fixed Income, the asset management division of Prudential Financial Inc., where he had management responsibility for approximately US$1 billion of Asian fixed income assets. He is recognised as one of the leading managers of Asian Fixed Income in the region, and has been voted by Asian institutional magazine The Asset as amongst the Most Astute Asian Bond Investors every year since 2004.

Clifford gained a Bachelor of Finance degree from The University of Hong Kong, holds an Investment Representative License with the Monetary Authority of Singapore and is also a CFA Charter holder.

Brochure

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Infographics

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Factsheet

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Opportunities in Asian Fixed Income

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Fund Commentary

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What's behind the success of the Asian fixed income market?

The Asset, 21 June 2017

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Why Asian bonds are still undervalued

The Business Times, 13 January 2017

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Threadneedle fund swims against the tide

The Edge Singapore, 5 December 2016

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