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Thursday September 30, 8:00 PM
DBS Enhanced Income FundDBS The DBS Enhanced Income Fund (click here for factsheet) seeks preservation of capital, liquidity and consistent with these objectives, to outperform the SIBOR (Singapore Inter-bank Offer Rate) by investing in a diversified portfolio of good quality, short-term bonds and money market instruments.
Mr Lim Heong Chye, lead fund manager and Managing Director of DBSAM says the fund is a good option for investors who want a safe investment, but desire a higher return than what is available through fixed deposits " In the fixed income world, there are 3 main categories of funds: on the extreme left, there is the cash management fund, then the mainstream global bond fund, and on the other end is the high risk, the high yield type of fund. This fund is positioned as a cash management fund to provide an answer to investors who need liquidity and want better returns than bank deposits." The fund has a T+1 structure, which means that upon selling the fund, the fund house only takes a day to process the transaction. This T+1 liquidity is an important consideration for investors who wish to use the fund to park excess cash, and are concerned about how quickly they can receive their money. Lim says the fund can be used as an alternative to savings deposits for those investors who may be considering using their cash to purchase investments in the future. "With this fund, you get liquidity, capital preservation and some growth. The risk is more or less similar to a money market fund, except that the portfolio has the flexibility to go for a slightly longer duration - over 1-year. A money market fund can't do that and therefore cannot take advantage of a steeper yield curve. By extending the duration of the short term bonds slightly, you can get a higher return, without adding much risk. In view of the rising interest rate environment, the duration of the portfolio has been cut down from 1-year to 5-6 months and we are also cushioning the effect of rising interest rates with floating rate notes" says Lim. Most of the short term bonds in the fund are global and Singapore corporate bonds. For example, some of the well-known names in the fund include entertainment giant Walt Disney and local names such as Shangri-la Hotel and Neptune Orient Lines (see Top 10 Holdings). Lim says that the fund only looks at investment grade bonds, which he defines as bonds above a BBB rating by Standard & Poor's. All the bonds in the fund are denominated in Singapore dollars, thus eliminating the threat of foreign currency risk. "We are careful about the rating of the companies that we buy. We can buy HDB, MRT and bonds of government-linked companies. We buy strong corporate issues, whether they are local or foreign bonds denominated in Singapore dollars. We have a very strong in-house credit-selection process for screening credit, and this is done by our experienced fixed income team. They select the issues that go into this fund. We look at investment grade bonds, and in fact, the average rating for the fund is between BBB to A." Although the fund only invests in Singapore denominated debt, Lim says the investment universe for the fund is quite wide. The size of the Singapore bond market is around S$100 billion (S$50 billion for Singapore government bond market and S$50 billion for the corporate bond market), so the fund has a wide variety of bonds to choose from. The choice has particularly opened up for corporate bonds, as more foreign companies have started to issue their debt in the Singapore bond market. Lim explains: "A few years ago, the MAS started to encourage foreign companies to issue bonds in the Singapore market to raise capital. They gave them incentives to do this. As a result, even well-known names like Louis Vuitton (luxury goods retailer) have issued bonds in Singapore. While some the bonds we hold are issued in the Cayman Isles, these bonds are bought based on the credit-worthiness of the parent companies which are usually located in the US or Europe." Lim says that despite a rising interest rate environment, investors shouldn't be too worried about how that will affect the fund's performance. He explains that the fund has ample flexibility to deal with different interest rate conditions. "The purpose of this type of cash management fund is to provide liquidity and a return higher than the deposit rate. Our goal is to outperform the deposit rate in a rising or falling interest rate environment. For a savings account or deposit, the interest is always lower than a corporate bond yield. By investing in the fund, investors can enjoy higher returns from a basket of money market instruments and short term bonds. This higher return can be achieved without taking much risk." FUND DETAILS (as at end July 2004) Top 10 Holdings HELIX INVESTMENTS LTD FRN 24/01/2006 Country
Allocation Sector Allocation Financial
Services 37.44%
'No investment decision
should be taken without first viewing a fund's prospectus. Any advice herein is
made on a general basis and does not take into account the specific investment
objectives of the specific person or group of persons. Past performance and any
forecast is not necessarily indicative of the future or likely performance of
the fund. The value of units and the income from them may fall as well as rise.
Opinions expressed herein are subject to change without notice. Please read our
disclaimers.'
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