How Have SGX-Listed Retail Bonds Performed During The 2020 COVID-19 Pandemic

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Bonds have always been regarded as the safer cousins of stocks. This is why most asset allocation strategies will recommend that investors hold a combination of stocks and bonds in their investment portfolios. The idea is that when there is a market downturn, stocks will decline in value while bonds are typically more resilient in retaining their value, or even see price appreciation. Through fixed coupon payments, bonds also can provide us a regular fixed income.

The result is that through a combination of stocks and bonds, we can construct a portfolio that not only generates us returns during good times but also provides us with sufficient protection, as well as a regular fixed income stream even during a recession.

Since the 2008 Global Financial Crisis, we have not witnessed a major recession until earlier this year, when the COVID-19 global pandemic affected financial markets around the world. This also makes it a good time for us to evaluate just how true it is that quality bonds can retain its value even during periods of heightened volatility.

Rather than choosing bond funds, ETFs or indexes to compare, we decided to look at the performance of some of the major retail bonds listed on the Singapore Exchange (SGX) to see how they have performed in 2020.

Source: SGX (information accurate as of 15 Nov)

#1 CAPITALDMTR S$350M3.08%B210220 by CapitaMall Trust (SGX: TY6Z)

The CapitaMall Trust bonds is the first company on our list. The 7-year bond was launched in February 2014 will mature in February 2021.

Source: SGX (information accurate as of 15 Nov)

Given the short duration it has to its maturity, we can see that the bond value remained very stable even during the most volatile 30-day period (24 February 2020 to 23 March 2020) we have experienced in recent times.

From the table above, we can see that even during this volatile period (24 Feb to 23 Mar), CapitaMall Trust bond lost only 2.9% of its value. In contrast, CapitaMall Trust stock went down by almost 35% during the same 30-day period. Both the global stock market and the Singapore stock market also performed poorly during this period, as the S&P 500 and STI declined by 30.6% and 28.9% respectively.

Since 23 March 2020, CapitaMall Trust Bond prices have recovered to pre-COVID-19 levels (as of 15 Nov 2020). Both CapitaMall Trust stocks and the STI have not recovered to their pre-crash level.

As a retail Real Estate Investment Trust (REIT), it should come as no surprise to anyone that the stock price of CapitaMall Trust has been adversely impacted by COVID-19, and is still struggling to rebound to pre-COVID-19 levels. However, its bonds which mature next year were barely affected during this period.

#2 FP TREA S$500M3.65%B220522 by Frasers Property (SGX: AXXZ)

Frasers Property has a 7-year bond that was listed on the SGX on May 2015. The bond pays out a coupon payment of 3.65% p.a.

Source: SGX (information accurate as of 15 Nov)

If you own Frasers Property stocks before the Feb/Mar 2020 crash, you will not be a happy investor, as the stock price of Frasers Property declined by 37.7%, much steeper than the STI (-28.9%).

Its poor performance on the stock market doesn’t come as a surprise. As a real estate and property management company, much of the Frasers Property portfolio would have been badly affected this year.

However, if you have invested in Frasers Property bonds instead, you would be in a much better position. While its bonds did decline by about 10% during the 30-day Feb/Mar 2020 crash, it has recovered and is now trading at a similar level as its pre-COVID-19 price.

This is another example of an established real estate company that has been badly impacted by COVID-19, still seeing its bond value remain strong.

 #3 Astrea IV4.35%B280614 By Azalea Asset Management (SGX: RMRB)

We wrote about the Astrea IV private equity bonds when it was first launched in June 2018. Since then, Azalea Asset Management has launched another tranche of bonds called the Astrea V. Both bonds are traded on the SGX. For this article, we will just look at the performance of the earlier launched Astrea IV.

Source: SGX (information accurate as of 15 Nov)

Azalea Asset Management is a private equity fund that is wholly-owned by Temasek Holdings. It’s worth noting that the bonds are not backed by Temasek Holdings. This bond pays a coupon of 4.35% p.a.

Unlike the other two companies, Azalea Asset Management is wholly owned by Temasek Holdings and thus is not traded on the SGX. So we can’t compare its bond price to its stock price.

However, we can see after an initial drop of 7.1% in Feb/Mar 2020, where it was trading at just under its par value, the bond has recovered and is now trading at a level similar to its pre-COVID-19 price.

Read Also: 10 Things You Need To Know About The Astrea IV Bonds Before Investing

#4 TEMASEK S$500M 2.7% B 231025 (SGX: TEKB)

Besides Singapore Government Securities (SGS), Temasek retail bonds are as risk-free as they come by. These bonds are guaranteed by Temasek Holdings and pay a 2.7% p.a. coupon. This is a 5-year bond which was listed in October 2018.

Source: SGX (information accurate as of 15 Nov)

Like Azalea Asset Management, Temasek isn’t traded on the SGX so we cannot compare its bond’s performance to its stock.

Not surprisingly, the Temasek bond’s value remains relatively stable as it has only declined by 2.8% even during the Feb/Mar 2020 crash. This shows the bond is exceptionally resilient to market downturns.

Another interesting observation here is that the Temasek bonds have not only recovered since but are also trading at a level that is significantly higher than what it was at the start of the year. A likely reason for this is the current low-interest rate environment, coupled with the economy’s uncertainties. This makes the Temasek bond an attractive investment proposition during this period.

Read Also: 7 Things You Need To Know About Temasek’s T2023-S$ Bonds Before Investing In It

#5 NikkoAM SGD Investment Grade Corporate Bond ETF (SGX: MBH)

The NikkoAM SGD Investment Grade Corporate Bond ETF is the first to offer retail investors easy access to investment grade corporate bonds in affordable units. With one investment, investors are able to diversify their bond portfolio with numerous corporate bonds from high quality issuers, such as sovereigns, banks,  investment companies, insurance companies, real estate companies, REITs and others.

It is hard to make a like-for-like comparison to stock prices, even though the NikkoAM SGD Investment Grade Corporate Bond ETF comprises bonds from some listed companies, including OCBC, DBS, UOB, and others. This is because is it highly diversified.

Broadly, the NikkoAM SGD Investment Grade Corporate Bond ETF experienced a slight decline in price during the Feb/Mar downturn but has recovered strongly since then – trading at a level that is even higher than at the start of 2020.

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

Bonds From Established Companies Can Hold Their Value Well Even During The Worse Recession

As compared to stocks, there are limited retail bonds listed on the SGX for us to invest in, especially if you exclude the Singapore Government Securities (SGS).

Despite the limitation of choices, it’s still important for us as retail investors to select the right bonds to invest in carefully. While the pointers above suggest that bonds can hold their value well even when the stock market is in freefall, this doesn’t mean that we can just invest in any bonds automatically thinking that they will be safe.

We can still invest badly in bonds if we choose the wrong companies. Unfortunate examples in recent years include Hyflux and KrisEnergy. At the end of the day, if a company defaults on its loan obligations, our bond investments will be at risk.

As an investor, there are two things we need to remember.

Bonds Can Protect Our Portfolio

The first is that bonds can protect our investment portfolio. As shown above, even as some strong companies (e.g. property companies) are having their earnings adversely impacted by COVID-19, resulting in a weaker share price, their bonds’ price continues to remain strong. In fact, most of the bonds are now trading at a similar or higher price than their pre-COVID-19 levels. This compares favourably to stock prices, even of the same company, which are trading significantly lower than pre-COVID-19 levels.

This is an essential feature of bonds that we shouldn’t overlook. Even for the same company, stock prices and bond prices may not be correlated. As long as investors are confident about a company’s ability to make their debt repayments, their bond prices will remain stable even during a recession.

While the STI has declined significantly in 2020, investors may be glad to know that the ABF Singapore Bond Index Fund, an index ETF that tracks a basket of high-quality bonds issued primarily by the Singapore government and quasi-Singapore, is up about 8.2% since the start of the year. The iEdge SFI Corporate Bond Index, which tracks the performance of corporate debt issuances that are denominated in Singapore dollars, is also up about 7.0% since the start of this year. This shows that bonds do have a useful inverse relationship with the equity market.

Choose The Right Bonds

The second thing to remember is that we need to choose the right bonds. Investing in bonds for the sake of achieving the right asset allocation mix isn’t going to be good enough if we choose the wrong bonds.

To help investors in Singapore better understand how bonds can be a part of our portfolio, the Securities Investment Association of Singapore (SIAS) have an annual Fixed Income Conference to help retail investors understand the risks of investing in fixed income instruments and how they can be used to diversify their investment portfolio.

The inaugural conference which was held in 2019 included speakers such as Christopher Tan (Executive Director, MoneyOwl), Leong Wai Leng (CFO, Temasek) and Margaret Lui (CEO, Azalea). You can follow SIAS event calendar page to stay in touch on announcements on when the next Fixed Income Conference will be.

Read Also: 7 Things We Learnt About Bonds From The SIAS Fixed Income Conference 2019

For a teaser of what to expect, watch this video from last year’s Fixed Income Conference where our Managing Editor Timothy discusses with Christopher Tan whether bond investing is safe or risky, simple or complex?