Understanding fixed maturity bond funds: Launching United Fixed Maturity Bond Fund 3

In today’s uncertain financial landscape, many investors are looking for a source of income and total return. Whether you’re planning for foreseeable expenses like mortgage repayments or a child’s education, fixed maturity bond funds offer a straightforward solution. 

Read on to explore what fixed maturity bond funds are, how they work, and why they can be the right choice for your income needs.

What are fixed maturity bond funds? 

Fixed maturity bond funds blend the features of individual bonds and traditional bond funds. Fixed maturity bond funds invest in a diversified portfolio of bonds that mature around the same date, offering the predictability of yields with the diversification benefits of bond funds.

Fixed maturity bond funds are particularly attractive in a high-interest-rate environment. By locking in higher yields, these funds can potentially offer better returns than short-term money market funds and fixed deposits. 

Its fixed maturity nature allows investors to lock in attractive yields for a set period, providing a buffer against potential interest rate cuts in the future. With yields currently at historically high levels, it is an opportune time to consider fixed maturity bond offering. 

How does a fixed maturity bond fund work? 

Fixed maturity bond funds operate similarly to individual bonds but with added benefits.

1. Initial Offer Period (IOP) – During this time, investors can subscribe to the fund. Once the IOP ends, the fund closes to all investments.
2. Portfolio composition – The fund manager selects a basket of bonds that mature around the fund’s maturity date. These bonds are generally held until maturity, with minimal trading. Ongoing credit monitoring is carried out by the fund manager. 
3. Income and principal return – Investors have the option to receive regular interest payments. At maturity, the principal will be returned, assuming no defaults.

Key considerations before investing in fixed maturity bond funds

Here are some key considerations, and terms, to keep in mind before you purchase a fixed maturity bond fund: 

1. Initial Offer Period (IOP): This is the time frame during which investors can buy into the fund. Once this period ends, the fund closes to all investors.
2. Maturity date: The date when the fund will end, and the invested money, plus interest, is returned to investors.
3. Lock-up period: During this period, the invested capital is tied up until the maturity date, though some funds may allow early withdrawal with a penalty. Investors should carefully consider the illiquidity risk, if you foresee needing the cash flow within the lock-up period. 
4. Yield level: The yield level refers to the expected level of total return (including both interest income and capital appreciation)that investors can anticipate from the fixed maturity bond fund. While not guaranteed, this is an essential factor to consider when assessing the potential return on the investment.

Primer on United Fixed Maturity Bond Fund 3

We are excited to introduce the United Fixed Maturity Bond Fund 3 on the Endowus platform, a two-year fixed maturity bond fund designed to provide an income stream and total return from a predictable yield to maturity. 

The fund invests in a diversified portfolio of investment grade bonds globally, and it has a maturity date set on 17 July 2026. 

Two US dollar share classes will be offered, one being an accumulation share class, which means the coupon income will be reinvested by the fund manager back into the fund, and the other, a distribution share class, with a distribution frequency being annual, and target payout being 3%. Note: Distributions are not guaranteed and the level of payouts will be reviewed periodically.

Learn more about United Fixed Maturity Bond Fund 3, exclusive on Endowus in Singapore.

Is United Fixed Maturity Bond Fund 3 for me?

Investing in the United Fixed Maturity Bond Fund  could be a smart move if you’re looking to lock in a yield for the next two years, especially if you are concerned about potential interest rate cuts. Here’s who the United Fixed Maturity Bond Fund 3 is best suited for:

• Yield seekers: If you want to capture an income stream over the next two years
• US dollar investors: Ideal for those with US dollar needs. If you have to meet Singapore dollar liabilities, be aware of the foreign exchange risk
• Investors with near-term goals: Suitable for those who can commit the invested monies to the two-year period to not incur a penalty on early withdrawal.

Comparing fixed maturity bond funds with other offerings

Fixed maturity bond funds and fixed deposits offer high visibility on total returns over a fixed period. They lock in high yields with a high degree of certainty. However, fixed maturity bond fund typically offer higher yields than fixed deposits and better liquidity, even though there is an early redemption charge. 

Traditional bond funds, while offering daily liquidity and potentially higher returns through active management, do not provide the same level of predictability in returns. However, investors do enjoy the daily liquidity and if the managers are good at active management, they could potentially generate better performance for investors. 

How does United Fixed Maturity Bond Fund 3 compare with other investments?

Fixed deposits

United Fixed Maturity Bond Fund 3 typically provides a higher yield compared to traditional fixed deposits, making it an attractive choice for those looking for better returns on their US dollar investments and are comfortable with the investment risk. 

Therefore, we recommend you to compare the indicative net yield of United Fixed Maturity Bond Fund 3 with two-year fixed deposit rates being offered. 

Two-year US treasuries

The indicative yield of the United Fixed Maturity Bond Fund 3 is higher than the yield of the two-year US treasury bills currently available on the market. As of mid-June, the two-year US treasury was offering around 4.7% yield. 

The actual net yield locked in from purchasing two-year US treasury would also be lower depending on trading cost. Investors should consider:

1. Bid-ask spread
2. Trading platform commission
3. Platform fee
4. Custodian fee

Taking all the trading costs into account, the net yield could be up to 52bps* lower depending on the trading platform one uses.

* Based on an actual trading platform in Singapore. Commission on trading bonds is 0.2% for both buy and sell. Custodian fee is 0.08%. Platform fee is 0.04% (capped at 15USD).)

Fixed maturity bond ETFs

Fixed maturity bond ETFs is another good way to access a diversified basket of bonds that mature at a future date. The key advantage of it is that it is highly liquid. 

However, there are some key differences to consider.  

Fixed maturity bond ETFs typically track specific indices, like the Bloomberg MSCI December 2026 Maturity USD Corporate Index, and invest in a diverse range of bonds without specific credit selection. This mirrors the overall bond market. As a result, fixed maturity bond ETFs often have a significant portion of BBB- rated bonds, the lowest investment grade rating, while the United fund maintains a higher average credit quality. For example, the United Fixed Maturity Bond Fund 3 employs a rigorous credit selection process to ensure high credit quality and minimise default risk. 

Secondly, there would be more trading of the underlying composition for the ETF as the index rebalances regularly. Arguably, fixed maturity bond ETFs offer relatively less certainty on total return compared to a buy-and-hold approach of a fixed maturity bond fund. Lastly, one should also evaluate the cost of these ETF offerings, including the fund’s expense ratio and the trading platform costs, as they can range widely. Lastly, withholding tax applies to ETFs that are listed in the US.

What if a two-year lock-in of yield is too short or long for me?  If you are seeking longer-term investments with attractive rates,  Endowus has broader offerings for accredited investors, please reach out to our client advisors to find out.

How can I subscribe to United Fixed Maturity Bond Fund 3? 

Step 1: Here, select your desired share class

Select Accumulating share class or Distributing share class for your subscription of United Fixed Maturity Bond Fund 3, depending on your payout need during the two-year lock-in period.

Step 2: Read carefully the Fund’s information. Click “Buy this fund” to confirm you want to invest in this Fund. 

Before subscription, you should read through the fund’s important information, including its prospectus, indicative performance and potential distribution, fees, and subscription and redemption details. 

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Step 3: Set up your investment plan by entering the amount you would like to invest and your Endowus account email address. 

Based on your investment amount, you will be able to see the projected outcomes in two years. Once you have put in your email address of your Endowus account, you can click on “Invest in this Fund” to review and confirm your investment.  The minimum investment amount of the United Fixed Maturity Bond Fund starts at US$ 1,000.

Don’t have an account with Endowus? Get started here.

Step 4: Deposit US dollar cash, or deposit Singapore dollar cash and convert to US dollar on Endowus.  

After confirming your investment details and the acknowledgement of terms, your investment request will be confirmed and your investment goal will be created by the end of the week.

Next, you will have to deposit the sufficient funds for the indicated investment amount. 

Two ways to add USD to your cash balance

1. Deposit USD Cash

2. Convert SGD to USD in the Endowus app

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Note: USD transfers generally take 2-3 business days, and may incur transfer fees from your bank. Please ensure that there are sufficient USD funds in your Endowus account before 4 July 2024 (when the Initial Offer Period ends), otherwise the order will not be processed. 

Please reach out to support@endowus.com if you have any questions.