Winnersrationale

In a year when Asian credit markets were rocked by a sell-off in Chinese high-yield bonds, the DWS Invest Asian Bonds Fund navigated market volatility to deliver alpha to private banking clients in the region.

The German asset manager’s flagship Asian fixed-income strategy — which has assets under management of just over US$2 billion — focuses on bottom-up credit selection mostly across hard currency bonds. During the assessment period, the fund was boosted by a benchmark-agnostic approach that allowed for a lower exposure to China than some of its peers.

The investment team, led by Asian fixed-income veteran Henry Wong, targets market mispricings that, it says, are often the result of sharp changes in sentiment among the region’s investors.

The portfolio managers managed to obtain a positive contribution from the fund’s China allocation by focusing selectively on a handful of names in high-yield credit (those rated ‘BB’ or above). The strategy benefited from a tactical allocation to Huarong Finance, which became the largest holding in DWS Invest Asian Bonds near the start of 2021. The fund’s managers astutely calculated that the troubled state-backed finance company — whose bonds were heavily sold off by investors — would likely be bailed out by the Chinese government.

As a result, the fund outperformed across several timelines. In November 2021, DWS Invest Asian Bonds had returned 1.1% YTD in dollar terms, beating a 2.1% loss for the J.P. Morgan Asian Credit Index. On a five- and three-year basis, the fund has returned 4.7% and 5.6%, respectively, versus the benchmark’s 3.9% and 5.5%.

The unconstrained approach of DWS Invest Asian Bonds, which allows capital to be deployed across both the investment grade and high-yield spectrum, unearthed other alpha-generating opportunities throughout 2021. Those included the metals and mining sectors in India and Indonesia, which were boosted by a rally in global commodity prices. A focus on shorter duration helped to mitigate the worst market sell-offs triggered by rising US Treasury yields.

DWS Investments is Asian Private Banker’s Best Fund Provider – Asia Pacific Bond for 2022.