Friday, August 16, 2019

Inside The Bedokian’s Portfolio: iShares JP Morgan USD Asia Credit Bond Index ETF

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what we have in our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will briefly give an overview of the counter, why I had selected it and what possibly lies ahead in its future.

For this issue, we shall talk about the iShares JP Morgan USD Asia Credit Bond Index ETF, or I just refer to it as the iShares Asia Credit Bond ETF.


The iShares Asia Credit Bond ETF is listed on the Singapore Exchange with two ticker symbols; N6M (in US dollars) and QL2 (in Singapore dollars). According to the iShares site, the ETF is made up of debt instruments issued by sovereigns, quasi-sovereigns and corporates in Asia, excluding Japan. 

Some brief information of the ETF as at 15 Aug 2019:

  • Credit Quality: Almost 77% of the debt instruments are investment grade (rating BBB and above).
  • Geography: About 67% are from Hong Kong, Indonesia, Philippines, India, China and South Korea.
  • Sector: Approximately 56% are from sovereign and government-owned entities.
  • Maturity: Around 77% have a maturity of between two and ten years.
  • Management fee: 0.3%.
  • Distribution frequency and currency: Quarterly, in USD.

Why iShares Asia Credit Bond ETF?

In May 2017, when Genting announced that they would be redeeming their 5.125% perpetuals (perps) later in that year, I had to look for a replacement that had the same if not similar yield to replace it in our Bedokian Portfolio. Incidentally, there is another iShares bond ETF (iShares Barclays USD Asia High Yield Bond Index ETF), having historical yields of about 6% when I reviewed it back in 2017. 

However, I had opted for the iShares Asia Credit Bond ETF instead, as it has a higher proportion of investment grade bonds, which suited my selection criteria, even though the yield was lower at about three to four plus percent. It was lower than the 5.125% I was getting from the Genting perps but the compromise was reduced risk.

Also, I had chosen the SGD denominated instead of the USD one for ease of personal administration, though the latter is more liquid than the former.

The Outlook For Asian Bonds

The ongoing trade war between the United States and China had brought some challenges to the global economy and financial markets. Furthermore, interest rates across most of the developed regions and countries are either low, at zero or at the negative area. Further mentions include the Hong Kong social situation, and the ongoing South Korea-Japan diplomatic and trade spats. 

All these would give Asian bonds a mixed outlook in the months to come, meaning some countries’/regions’ bonds would have a normal yield curve, while others may see a flattening or inverted yield curves, due to their macroeconomic policies and/or investor sentiment.

As this ETF is close to 7% of our Bedokian Portfolio, and with the availability (and consideration) of the Nikko AM SGD Investment Grade Corporate Bond ETF (launched in Aug 2018), I may keep the current holdings and stop adding positions for now.


Bought iShares Asia Credit Bond ETF at: 

SGD 14.80, July 2017
SGD 14.27, January 2018
SGD 13.78, May 2018


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