Best Fund Provider Asia Pacific Bond
DWS
Best Fund Provider – Asia Pacific Bond
Robert Gibbs
head of Product Specialists, APAC – Fixed Income
“Our Asia Pacific bond strategy has been successful as it employs a risk aware, benchmark agnostic approach, which does not size allocations relative to an index. This means that if we don’t see opportunities in a certain market or issuer, we are not forced to own it, even to a limited extent.
This approach has been a clear positive for clients in recent years, as we have almost completely avoided weaknesses emanating from the China real estate sector. Equally, the strategy’s pragmatic approach has supported a tilt towards better quality investment grade issuers in markets such as Japan and Korea when we have felt the need to shelter from bouts of volatility. Our pragmatic investment style has helped protect investor capital and this has enabled us to deploy increased credit and duration risk without having to worry about legacy positions.
Minimising the portfolio’s interest rate sensitivity in 2021 and maintaining a low duration bias in 2022 were key to avoiding most of the volatility that resulted from the Fed’s initial inaction (and subsequent course correction) on inflation. In addition, we have been long-standing investors in markets such as India and Indonesia, both of which have found favour with investors looking for alternatives to China high yield in recent quarters.
Finally, the team profited from a number of more tactical investment opportunities — for example, in the China asset management sector in 2021, and selectively within the Indonesian commodity sector in 2022 — highlighting the pragmatic nature of the strategies’ investment style.
Our more total return orientated approach is designed to appeal to investors who want to maintain a strategic allocation to the asset class but expect us to guide them on when and where to take risk. And, just as importantly, take risk-off. The strategies’ highly selective approach to credit risk (we have had just two defaults in the strategy since inception in 2014) and sometimes contrarian stance seems to resonate with investors keen on a more active and dynamic approach, which goes beyond a simple focus on running yields.”
Winnersrationale
China’s slowing growth in 2022 and a continued fallout within the all-important property sector added gloom for Asian Credit investors, but in a challenging year like that, the flagship DWS Invest Asian Bonds fund managed to bring alpha to the Asia bond investors.
The strategy invests in fixed income/debt securities issued by governments of Asian countries, Asian government agencies, Asian country municipals and Asian corporates, that are denominated in Asian and non-Asian currencies.
With sharply increased rates volatility to contend with, the DWS Invest Asian Bonds fund at the end of 2020 adopted a relatively defensive posture on duration in expectation of a post-pandemic recovery. This stance has been maintained, with the portfolio’s relatively short duration positioning helping to mitigate drawdowns from rising US treasury yields
With its unconstrained approach, the bond fund had favoured a bar-belled strategy with a higher quality investment grade allocation balanced with selective high conviction calls within high yield at the start of 2022, in a view of rising idiosyncratic risks within the market.
On the back of broad-based credit spread widening amid rising recessionary expectations, the DWS Invest Asian Bonds strategy’s careful positioning was beneficial. Overall, allocation and selection contributed +225 bps in attribution terms.
As a result, the strategy’s performance was resilient in spite of the challenges: it returned a negative 5.76% in dollar terms as of the end of August 2022 — outperforming the J.P. Morgan Asia Credit Index (JACI) which was down 10.64% in the same period — and delivered an alpha of +488 bps.
In particular, the DWS Invest Asian Bonds fund’s long-standing low exposure to China, particularly China’s high-yield property, was a key performance driver as sentiment towards the sector remained subdued against a background of a record series of defaults and weak residential home sales.
Congratulations to DWS for winning another year of Best Fund Provider – Asia Pacific Bond in Asian Private Banker’s 2023 Asset Management Awards for Excellence.
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