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How Fixed Income ETFs Can Help Protect Your Investment Portfolio In Singapore

Fixed Income ETFs can protect our investment portfolio during periods of high volatility – such as what we have experienced in 2020.


Most people recognise that fixed income assets are generally safer than equities. During an economic crisis, fixed income assets such as bonds can retain their value better than equities. This helps investors to protect their portfolio against unexpected volatility like what we have experienced in 2020.

Similar to investing in equities, we also need to invest in the right mix of high-quality fixed income assets. Suppose we simply invest all our money into just one or two bonds. We face the risk that the performance of our fixed income portfolio will be impacted heavily if the companies issuing these bonds run into difficulty repaying the borrowed money.

It’s impractical to expect retail investors to diversify their fixed income investments in 10 or more high-quality bonds on our own. Not only would the transaction costs to invest in each of these bonds be quite high, but many government and corporate bonds also require a minimum investment amount that can be quite high.

For example, if each bond requires a minimum investment of $10,000, investing in ten separate bonds will cost at least $100,000.

With fixed income ETFs, retail investors who have a smaller portfolio can still invest in a wide variety of high-quality bonds for asset allocation reasons.

Gaining Exposure To Bonds Via Fixed Income ETFs

Currently, on the Singapore Exchange (SGX), there are several fixed income ETFs that we can invest in.

Screenshot from SGX taken on 11 Nov 2020

As an investor, we can choose to invest in various fixed income ETFs based on the type of market or sector we want exposure to. Some of the fixed income ETFs listed on SGX are traded in both Singapore Dollar (SGD) and US Dollar (USD) so investors have a choice on which currency they want to invest in. Here is a highlight of some of the fixed income ETFs:

ABF Singapore Bond Index Fund (SGX: A35)

The ABF Singapore Bond Index ETF invests in SGD-denominated bonds issued by the Singapore government and quasi-government entities. These bonds have a “AAA” ratings and are extremely safe.

XTrackers Singapore Government Bond UCITS ETF (SGX: KV4)

If we want to only invest in the triple-A bonds issued by the Singapore government, the XTrackers Singapore Government Bond UCITS ETF is the ETF that we are looking for. Similar to the ABF Singapore Bond Index Fund, this is as safe as any investment you can make on the SGX.

Nikko AM SGD Investment Grade Corporate Bond ETF (SGX: MBH)

If we want to invest in corporate bonds that are offered by quasi-sovereign entities in Singapore and high-quality companies, we can consider the Nikko AM SGD Investment Grade Corporate Bond ETF.

ICBC CSOP CGB ETF (SGX: CYC) – New!

Launched in September 2020, the ICBC CSOP CGB ETF is the world’s largest China pure government bond ETF. It invests in a diversified basket of bonds that is issued by the Chinese government. On 26 October, AUM for the landmark ETF has crossed the US$1 billion mark.

Phillip SGD Money Market ETF (SGX: MMS) – New!

Launched in October 2020, the newest ETF on the SGX is the Phillip SGD Money Market ETF. It’s the first Singapore-domiciled money market ETF on SGX and the only money market ETF in South East Asia. As a money market ETF, the Phillip SGD Money Market ETF invests only in short-duration debt instruments such as fixed deposits, government and corporate bonds and commercial bills with an average of 90 days to maturity.

Read Also: Complete Guide To Investing In Corporate Bonds In Singapore

One point worth noting is that most of these fixed-income ETFs have seen a positive year-to-date (YTD) gain in 2020. This is not surprising and in stark contrast to the Straits Times Index (STI) which has declined by about 16% from 3,252 (2 Jan) to 2,712 (11 Nov).

During a time of crisis, investors will flock to safer fixed income instruments and investing in fixed income ETFs can provide stability for our portfolio even during a recession.

Also, income-seeking investors can continue enjoying passive income since fixed-income ETFs also provide regular coupon payouts, unlike investments in equities, which may decide to hold more cash during periods of uncertainty or see significant business disruption.

According to the SGX, the historical weighted average yield for the ABF Singapore Bond Index ETF is at 1.28% p.a. while the Nikko AM SGD Investment Grade Corporate Bond ETF provides a yield of about 2.40% p.a.

Besides allowing you to gain fixed income exposure in a hands-off manner, fixed income ETFs also have an advantage over investing in individual bonds because of superior liquidity. While individual bonds are subject to market demand and supply – and some bonds may not have daily transactions, fixed income ETFs are much more liquid and can be easily bought and sold anytime during market trading hours – even when the underlying bonds themselves are illiquid.

As an experienced investor would tell you, asset allocation is a critical component for long-term investing. By gaining exposure to a wide range of bonds via fixed income ETFs, we can ensure that our investment portfolio can weather through challenging market conditions while still allowing us to enjoy growth during good times.

Based on a recent market update from SGX, Singapore bond ETFs have outperformed Singapore equity ETFs amidst the economic slowdown caused by COVID-19, with the “AAA” investment-grade ABF Singapore Bond Index ETF and Xtrackers II Singapore Government Bond UCITS ETF averaging a YTD return of 8.6%.

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