Aberdeen Asset Management has launched two Asian bond funds to broaden the range of fixed income pooled funds it offers that invest in the region.
The Aberdeen Global – Indian Bond Fund is a single country strategy and at least two-thirds of the Fund’s assets in Debt and Debt-Related Securities which are issued by government or government-related bodies domiciled in India and local corporate.
The Aberdeen Global – Asian Credit Bond Fund is pan-regional mainly investing in Debt and Debt-Related Securities which are issued by corporations in Asia.
The timing of the launches reflects Aberdeen’s belief that Asian debt fundamentals are improving but mis-priced. In India it sees Prime Minister Modi’s structural reforms and the credibility of Rajan at the Reserve Bank of India as a potent combination. The Indian rupee has held up well and inflation brought under control.
For the region in general, solid trade and current account balances underpin economies. The risk-return profile of corporate issuers is also attractive. Along with decent real yields, they offer uplift over benchmarks but with superior quality.
This anomaly is in part technical: global and emerging market benchmarks do not provide much exposure to Asia. Compounding that is a lack of awareness of what the region offers because fund manager coverage itself is thin and, in some cases, there are barriers to access. India, where Aberdeen holds a Foreign Portfolio Investors (FPI) licence, is a case in point.
The universe is considerable: the JPMorgan Asia Credit Index contains over 800 issues from over 300 issuers across 15 countries. On its side Aberdeen has 18 macro and credit analysts based in Singapore, Bangkok, Kuala Lumpur and Jakarta. The team has been expanding its security due diligence, helping it to refine relative as well as fundamental value analysis.
Aberdeen is aiming its two funds at relatively sophisticated investors, although it stresses that the Asian Credit Bond Fund should not pose a hurdle to anyone used to investing in more risky regional equities.
As a sign of confidence, the company is seeding the Indian Bond Fund from internal allocations so the fund will have around US$60m at inception, while the Asian Credit Fund will start at US$10m.
The Funds have initially been registered for sale in the following countries Austria, Belgium, Germany, Italy, Luxembourg, Netherlands, Spain and Switzerland. The Indian Bond Fund does not hedge at the portfolio level, the currency being one element of total return.
Victor Rodriguez, Head of Asia Pacific Fixed Income at Aberdeen, commented: “The fundamentals of the Asian credit and, especially, Indian bond, markets are compelling yet investor perceptions have not yet caught up. This is a part of the world where growth and savings are being generated and where policy makers are largely on top of events. In India the term structure of interest rates is in decline and that is very positive. Elsewhere, we find attractive real yields backed by decent, sustainable cashflows. When there is so much anxiety globally about inflated asset prices Asian debt would seem to offer good pricing and long-term diversification potential.”
