Connect with us


Why Syfe Income+ Portfolio Could Be The Easiest Way To Generate Passive Income From Globally Diversified Bonds

Investing in a globally diversified bond portfolio for regular monthly income has never been easier.

In the financial market, there are broadly two ways we can generate returns from our investments. We can generate profits via capital appreciation or through the income that the assets pay out.

While equities tend to be favoured if we want capital appreciation, bonds can be considered if we prefer regular passive income.

Since the tail end of 2022, as interest rates increased, bonds naturally became more attractive to investors and products such as treasury bills and corporate bonds have become the subject of investors’ focus.

Stocks Or Bonds: The Advantages Of Each Asset Class

Traditionally, bonds have been one of two major asset classes that form an investor’s portfolio with the other being equities. Yet, while many investors typically focus on equities such as which stocks, ETFs or unit trusts to invest in to generate good returns, bonds tend to go under the radar.

This is because regardless of how well a company performs, bonds can’t give us excess returns beyond what its coupon payment (i.e. the interest that a company pays out periodically to its bondholders) promises. If a bond pays a semi-annual coupon payment of 5.0% p.a., we will get $25 twice a year (total of $50/year) for every $1,000 of bonds we invest. Unlike equities, we don’t get paid more if the company is more profitable.

The flip side is that unlike equities, where the company has the discretion not to pay out dividends, companies that issue bonds are obliged to pay the promised coupons for their bonds, regardless of their performance. So if you want stable regular income as an investor, bonds might be preferred.

Also, bonds are considered a defensive asset because they are usually less volatile than stocks. During a recession, stock returns – as they are largely driven by a company’s ability to grow and generate profits – tend to be lower. Conversely, bonds become more attractive because the company is still obliged to pay the coupon payments, and to return the initial capital once the bond matures, regardless of their performance.

This isn’t to say that bonds are risk-free. Similar to equities, if a company performs poorly and goes into liquidation, both shareholders and bondholders can lose their capital investment, with bondholders typically having a higher priority claim on the company’s assets over shareholders.

Like stocks, the market value of a bond can also increase or decrease depending on factors such as its credit rating, market interest rates or investors’ sentiments. However, they also tend to be less volatile compared to the equities from the same company.

Limitations Of Bond Investing For Retail Investors

Traditionally, bonds have been less accessible for retail investors compared to stocks. For example, many bonds have a high minimum subscription amount of $250,000 or more. This makes investing in bonds difficult for those of us who can’t afford the amount.

But even if we are able to cough up a quarter of a million to invest in bonds, the next problem we will face is diversification. Similar to stocks, it’s critical that we diversify our bond holdings. But if the minimum investment amount is $250,000 for each bond, then realistically, it’s very difficult to diversify adequately as a retail investor.

There are good reasons why we need to diversify our bond portfolio and I will explain two reasons that come to mind.

The first is that unlike stocks, we cannot expect outsized returns when it comes to bond investing. After all, the returns that we get from the bonds we invest in would likely be the coupon payments that are paid. While the market value of a bond we are holding may fluctuate and go up, this is unlikely to be as significant as stocks.

The second is that we take much higher risks in our bond investments if we do not diversify, without a correspondingly expected higher return. For example, if we have $10,000, we can either invest all our money in a single bond that pays us a 5% coupon payment, or spread it across 100 different bonds via a bond fund. In both scenarios, the expected return we will get is 5%.

However, what happens if there is a default?

If we invest in a single bond, a catastrophic outcome would be a complete loss of our initial capital. However, if we invest through a bond fund and one of the bonds in the fund default, we still receive coupon payments from the remaining bonds while losing a capital of $100.

The above hypothetical scenario shows that bond diversification can greatly reduce the risk of our bond investment while keeping the expected return at a similar level.

How Syfe Income+ Can Help Investors Invest In Globally Diversified Bonds

To help investors get easy access to high-quality, globally diversified bonds that can give us regular income, Syfe has created the Syfe Income+.

Constructed by Syfe in collaboration with PIMCO, a global leader in active fixed income, Syfe Income+ allows investors to invest in PIMCO’s best-in-class fixed income strategies.

According to Syfe, the investment process consists of PIMCO providing insights and non-binding asset allocation guidance to Syfe in the portfolio construction process. On Syfe’s end, it manages and provides these portfolios to investors and takes care of all servicing and advisory needs. You can read more about their investment process here.

There are two options for Syfe Income+. There are 1) Income + Preserve and 2) Income + Enhance.

As explained by Syfe, Income + Preserve is built for investors looking to generate a steady regular income while seeking to preserve capital. It employs a strategy that focuses on investment-grade quality bonds, which typically involves investing in high-quality bonds such as US Treasuries and investment-grade corporate bonds. It’s considered a low risk investment by Syfe.

Income + Enhance is built for investors seeking to generate higher current income and long term capital appreciation. It employs a strategy that focuses on credit to generate higher returns, which typically involves investing in higher-yielding, lower-rated bonds such as high-yield corporate bonds and emerging market bonds. It’s considered a moderately low risk investment from Syfe.

Source: Syfe

There are two key figures above for the Syfe Income+ that we need to know.

The first is the Monthly Payout. As seen above, the projected monthly payout for Income+ Preserve is 4.0 – 4.5% p.a. while the projected monthly payout for Income+ Enhance is higher at 5.0 – 6.0% p.a. However, monthly payout shouldn’t be confused as the return the portfolio generates.

Instead, we should look at Yield To Maturity (YTM) as the estimated rate of return that an investor can receive for the bond portfolio they are invested into. YTM is the return that a bond generates if it’s held till maturity. This takes into consideration the current bond price, the coupon payment payable and the time remaining until maturity.

Do note that for a bond fund, the YTM will change as market interest rates adjust and older bonds in the portfolio matures and are reinvested into newer bonds.

In the current instance, both the YTM for either Income+ portfolios are higher than the Monthly Payout.

One good thing about both Syfe Income+ portfolios is that they are designed to provide a monthly payout to investors as opposed to annual or semi-annual payouts like what most individual bonds would pay. This is ideal for investors looking for passive income (e.g. retirees or anyone else who wants an additional income stream) since most of our expenditures are typically budgeted and paid for monthly. However, if you don’t need the payout, you can choose to automatically reinvest and compound your returns in the portfolio.

Other features that are noteworthy include being tax-efficient. Given that income from these funds will form the bulk of our returns, any tax implication will have a significant impact on our overall returns. As such, the funds used in the Income+ portfolios are domiciled in Ireland, making them more efficient with respect to dividend withholding taxes.

The portfolios are also SGD-hedged. This means that even though a large amount of the bonds are not SGD-denominated, as Singapore investors, foreign exchange fluctuations against the SGD will not significantly affect the performance of the funds.

Do note that the PIMCO funds are actively managed. This is a belief that for fixed income securities, active management can allow the funds to produce an attractive level of income while maintaining a relatively low risk profile.

Access Institutional Level Funds with Lower-Costs

Syfe claims that if you were to invest on your own with bond unit trusts, the fund level fees alone could cost you 1.53% per year as a retail investor. Through Income+, a similar investment in bond unit trusts with institutional-level funds would cost about 0.65%, or about 60% lower.

Do keep in mind that Syfe also charges a management fee on top of this.

For those who are already existing Syfe’s users, you would already be familiar with the fees. Syfe charges an all-inclusive fee between 0.35% to 0.65% per year, depending on your invested amount across all portfolios. These include the Core, Thematic, REIT+ , and the new Income+ portfolios.

Investment amount or current value of all investment portfolios Annual management fee for all investment portfolios
No minimum 0.65%
S$20k or more 0.50%
S$100k or more 0.4%
S$500k or more 0.35%

This all-inclusive management fee gives you unlimited free withdrawals, unlimited rebalancing and 100% trailer fee rebate. It is calculated on a daily basis and billed at the end of each month. Should you withdraw your balance before the end of the month, you pay only for the days your money was managed by Syfe.

In our view, with a low all-inclusive annual management fee, Syfe makes it easy for Singapore investors to start their investment journey through any of its wealth portfolios including the Syfe Core portfolios, Syfe REIT+, Syfe Thematic portfolios and now, the Syfe Income+. Best of all, we don’t have to choose one over the other. We can continue investing in all the other Syfe portfolios we already have while adding on Income+ if it helps us with our investment objectives.

In our view, whether you are already an experienced investor with a large equity portfolio that has been built up over the years, but are now seeking monthly regular income as you approach retirement, or a younger investor looking to build a secondary income stream, Income+ is likely the easiest and most efficient way we can get started today to generate passive income from high-quality, globally diversified bonds at a low cost.

Learn More About The Syfe Income+ Portfolio

If you are keen to find out more about the Syfe Income+ portfolio, there is a session later this week on 11 May led by Ritesh Ganeriwal, Syfe’s Head of Investment Advisory and Alice Lo, PIMCO’s Senior Vice President and Head of Singapore Retail, and moderated by Jason Ang, Syfe’s Wealth Advisory Lead. Register for this event here.

If you are interested to get started on investing with Syfe in any of its portfolios. DollarsAndSense has an exclusive partnership with Syfe – enjoy a 0% management fee for the first $30,000 during the first 3 months after you sign up. Apply here to enjoy the promotion.

For existing Syfe users, don’t worry – you can also use “DNSRB” to enjoy up to 6 month’s worth of fee waivers for your Income+ portfolio based on your deposit amount. Full T&Cs are found here.

This article contains affiliate links. DollarsAndSense may receive a share of the revenue from your sign-ups. You can refer to our editorial policy here.