A focus on fixed income — curated bond funds
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A focus on fixed income — curated bond funds

Updated
28 Aug
2024
published
7 Jun
2023
  • Bonds have traditionally played two crucial roles in investors’ portfolios: they dampen overall portfolio volatility, and can act as diversifiers to stocks.
  • Investors are increasingly turning to bonds for higher yields, as risk-reward trade-off has much improved as compared to the long period of near-zero risk-free rates prior to 2022.
  • Looking to invest in bond funds that can meet your wealth needs and goals? Consider the following curated funds from popular fixed-income segments such as investment grade, high yield, short duration, and emerging markets.
  • Explore more Best-In-Class funds from leading global fund managers on the Endowus Fund Smart platform. To get started with Endowus, click here.

Why are bonds attractive now?

Fixed income has continued to enjoy the spotlight year-to-date, as investors turn to bonds for the higher yields amid elevated inflation and interest rates, and uncertainty in the macroeconomic environment. 

Prior to 2022, abundant liquidity had led to easy borrowing, but it also limited the earning potential of lenders due to the near-zero or negative risk-free rates. The tables turned in 2022, when central banks around the world hiked rates aggressively to combat high inflation. This roiled the fixed income market. For example, the Bloomberg Global Aggregate Index, representing the global investment-grade bond market, experienced its worst downturn in 30 years.

Going forward, while there is still uncertainty, the fixed income market's risk-reward trade-off has significantly improved. Valuations in different fixed income sectors have improved, with current yields-to-worst nearing 10-year highs and exceeding the 10-year median.

Fixed income valuations: This chart shows the yields of different fixed income sectors relative to their 10-year ranges and medians. Current yields are at some of their highest levels in the US in the past decade, illustrating that the fixed income market now offers meaningful income, yield protection, and relatively attractive valuations. Source: JPMorgan Asset Management
Source: JPMorgan Asset Management

Spotlight on selected bond funds

Fixed income is a diverse universe. The Endowus Investment Office has curated a list of funds from popular fixed income segments for your consideration, including short duration, investment grade, high yield, and emerging markets. 

On the Fund Smart platform, you can invest in HKD or USD, depending on the fund and share class.

As a quick primer, here are a few key metrics you may wish to consider when choosing a bond fund to invest in:

  1. Duration: It measures the sensitivity of a bond’s price to interest rate movements. Typically, for every 1% change in prevailing interest rates, the bond price will move by about 1% in the opposite direction for every year of bond duration. For instance, when interest rates drop by 1%, the price of a five-year duration bond will rise by 5%. Generally, the longer the duration, the more sensitive the bond price is to rate changes — and therefore, riskier. At the fund level, the duration refers to the weighted average duration of all the single bonds that are included in the fund. 
  2. Yield to maturity (YTM): It measures the total rate of return that will be earned from a bond when the issuer makes all interest payments and repays the original principal. Note that the yield to maturity is not the same as total return, which is a combination of both yield and capital appreciation. 
  3. Credit quality: A measure of the issuer’s creditworthiness, predicting its ability to repay the debt, and implies how likely it is to default. Credit ratings range from AAA (best) to CCC (worst). The worse an issuer’s credit quality is, the higher interest or yield it will have to offer in order to reward the investor Typically, AAA to BBB are considered investment grade, which is safer — more creditworthy — than high yield. 

To learn more about the basics of bonds, refer to the next section below.

Short-duration bonds

Short-duration bond funds invest in bonds with shorter maturities. This limits the interest rate risk and aims for price stability. Such funds are particularly helpful in a rising interest rate environment, and can be great for more conservative investors who have a shorter investment horizon.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
Neuberger Berman Short Duration Emerging Market Debt Fund
USD: IE00BDZRXR46
2.3 7.2% BBB 0.57%
AB Short Duration High Yield Portfolio Fund
USD: LU0654560100
HKD: LU0787777290
2.7 8.0% BB- 0.75%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 30 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

Global aggregate bonds

Global aggregate bond funds are benchmarked against the Bloomberg Global Aggregate Index, which is widely considered to be one of the best total bond market indices. These funds invest in a diversified portfolio of global investment-grade (higher-quality) government and corporate bonds. Global aggregate bond funds could serve as a robust baseline allocation in a portfolio to gain exposure to the fixed income market, and can be great for conservative investors with a long horizon.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
PIMCO GIS Global Bond Fund
USD: IE0002461055
HKD: IE00BYYLVF85
5.5 5.5% AA 0.49%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 28 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

Global investment-grade credit

Global investment grade (IG) credit funds invest specifically in corporate bonds that are rated as investment grade. These funds allow investors to pick up additional yield as compared to global aggregate bond funds, without venturing into the riskier fixed-income segments such as high-yield bonds. Global IG credit funds are less diversified and riskier than global aggregate bond funds, but safer than global high-yield bond funds. Global IG credit funds can be great for conservative, long-term investors looking for yields higher than those of global aggregate bonds by taking on some incremental risk.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
PIMCO GIS Global Investment Grade Credit Fund
HKD: IE00BF0F6C36
5.9 5.9% A 0.49%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 30 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

Flexible-income bonds

Flexible income bond funds are actively managed bond funds investing across multiple sectors of fixed income — including but not limited to government, corporate, securitised, and emerging markets. The fund managers actively manage the interest rate risk and credit risk exposure based on their market views, in order to achieve their investment objectives. This means that the managers’ views will have more of an impact on the fund’s performance as compared to other categories of funds.

Both of the flexible income bond funds listed here aim to maximise the current income level while maintaining a relatively low risk profile. Because of the differences in the fund managers' approach and positioning, we think they can be a great complement to each other and diversify single manager risk.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
PIMCO GIS Income Fund
USD: IE00B87KCF77
HKD: IE00BYXVW909
3.0 6.6% A+ 0.55%
JP Morgan Income Fund
USD: LU1041599405
HKD: LU1128926307
4.1 7.6% A- 0.68%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 30 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

Global high-yield bonds

Global high yield (HY) bond funds invest specifically in corporate bonds that are rated high yield (lower quality). These bonds offer higher yield, but come with higher credit risk. Companies issuing HY bonds are generally more levered — they have a higher amount of leverage, or debt — and thus face a higher chance of default than IG bonds. That said, HY bonds are still a less risky investment than equities, and can be suitable for more risk-seeking investors who seek higher total returns but do not want to take on equity risk.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
PIMCO GIS Global High Yield Fund
USD: IE0002420739
3.3 8.1% BA+ 0.55%
Barings Global High Yield Bond Fund
USD: IE00BFM0MP15
HKD: IE00BFM0NG98
4.4 8.7% B+ 0.70%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 30 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

Emerging markets

Emerging-market bond funds invest in bonds issued by governments or corporates in emerging markets (EM). As these economies are more locally driven, they offer good diversification to investments in developed-market bonds. Given the higher risk associated with EM entities, such bonds allow investors to pick up additional yield as compared to the global aggregate bonds. Therefore, EM bond funds can be great for more risk-seeking investors who are looking for higher total returns.

In the table below, the Neuberger Berman fund has a short-duration focus and hence offers a lower-risk option within this EM category. The PIMCO fund invests primarily in emerging markets sovereign debt denominated in US dollars (USD). The Goldman Sachs fund invests primarily in emerging markets corporate debt denominated in USD.

Fund name, ISIN Duration
(years)
Yield to maturity Average credit quality Fund-level fees after Cashback*
Neuberger Berman Short Duration Emerging Market Debt Fund
USD: IE00BDZRXR46
2.3 7.2% BBB 0.57%
PIMCO GIS Emerging Markets Bond Fund
USD: IE0030759645
6.8 8.0% BAA 0.79%
Goldman Sachs Emerging Markets Corporate Bond Portfolio Fund
USD: LU0622305505
HKD: LU1932893719
4.3 7.7% BBB 0.64%

*Fund-level fees after Cashback on trailer fees include the fund's total expense ratio (TER) and the trailer fee rebate, but do not include the all-in Endowus Fee.
Note: Duration, yield to maturity (YTM), and average credit quality metrics are as of 30 April 2023. Where a fund has both HKD and USD share classes, the fees of the USD share class are shown. Where a fund has both accumulation and distribution share classes, the ISINs of the accumulation share class are shown; if you wish to explore distribution share class options, please refer to our investment funds list or reach out to us at [email protected].
Source: Endowus Research, fund factsheets.

For a quick overview of all the funds available on Endowus Fund Smart in Hong Kong, refer to our investment funds list here

You can also use all the funds available as building blocks to customise your ideal investment portfolio in minutes with Fund Smart. With our industry-first 100% Cashback on trailer fees, more than 95% of the funds we offer on our platform are cheaper on Endowus than on any other fund platform, bank, private bank, financial advisor, or broker in Hong Kong.

Not sure how to invest with Fund Smart? Find out everything you need to know in our FAQs. If you wish to invest in a professional investor-only (PI-only) fund, please contact [email protected].

Prefer to leave the fund selection to the experts? You may also invest in the Endowus model portfolios. Consider the Endowus Global model portfolios, which have a varying mix of fixed income and equities, if you want a broad long-term allocation to grow your wealth. Or, if you wish to generate passive income through fixed-income investing, consider our Passive Income model portfolios

Understanding fixed income

Not familiar with bonds as an asset class? Simply put, bond investors lend money to the issuers (essentially the borrowers), and in return the investors receive coupons — or interest payments — on a regular basis. These regular coupons are why bonds are also referred to as fixed income. Governments and companies issue bonds to investors when they want to borrow capital. 

When the bond matures, the issuer is supposed to repay the principal amount (the sum being borrowed) to the investor. A default happens if the bond issuer fails to repay the principal by the maturity date or misses a coupon payment.

To help you get started, here are four key terms investors need to know about bonds.

  1. Total return: This is the overall gain (or loss) an investor realises from both income and capital appreciation (or depreciation) over a specific period. In the context of bonds, total return represents the combined impact of the coupon payments an investor earns as well as any changes in the bond's price (market value).
  1. Risk: Lending money will entail (i) credit default risk, which refers to the potential loss if the borrower defaults, and (ii) interest rate risk, which compares the interest earned with the risk-free rate. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment (such as a bank deposit) over a specified period of time. A simple illustration of interest rate risk is if a friend borrows money from you and is paying you 3% interest, but you later find out that your bank’s fixed deposit offers 5% interest for the same amount. Essentially, you would have been better off financially putting the money at the bank rather than lending it to your friend.
  1. Price fluctuations: Because bonds are traded, bond prices fluctuate based on the market's perception of risk. When the prevailing risk-free rate rises, new bonds will be issued at a higher interest rate, while the prices of existing bonds will drop. This comes as investors demand higher returns and favour the new bonds that are paying higher coupons. Similarly, a bond’s price may also fall when the credit spread increases, as it indicates higher credit risk. The credit spread is the difference in yield between a bond and a benchmark risk-free security with a similar maturity.

To learn more about bonds, refer to this article. Explore our Insights articles and webinars to pick up tips on investing, investment solutions, personal finance, and retirement planning.

Harness the power of fixed income in your investment portfolio 

Bonds have traditionally played two crucial roles in an investor’s portfolio. 

Firstly, they dampen overall portfolio volatility. The higher predictability of a bond’s cash flow means that it is inherently a less volatile asset class than stocks. 

Secondly, fixed income can act as diversifiers to stocks. Bonds often perform differently from stocks in various macroeconomic environments. For example, in a recession, investors tend to seek out less risky, safe-haven investments — this can result in the prices of equities declining while prices of high-quality bonds increase. The chart below shows that equities and bonds have typically moved in different directions during major global events.

Chart: Stocks and bonds - growth of wealth ($100) in the Bloomberg Global Aggregate Index, representing fixed income markets; and the MSCI ACWI, representing global equities, over the past two decades. Source: Endowus Research, Morningstar

Therefore, generally speaking, adding fixed income to a portfolio helps calibrate risk levels and enhance risk-adjusted returns. Furthermore, the fixed income universe is made up of diverse segments — offering a vast array of options for investors to mix and match different levels of risks and rewards from lending to a variety of governments and companies around the world.

Accessing Best-In-Class Fixed Income Funds on Endowus Fund Smart 

If you are new to Endowus Hong Kong, you can get started either by opening an account with us here, or by clicking the button below. 

You can also view the full list of Best-in-Class funds curated by our Endowus Investment Office on our Investment Fund List.

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