MBH/A35 alternatives

[reddevil0728]

Yes that’s why it has not been touched all these years . But with the recent run up of interest rates in this 2 months , now Tbills pushing past 4% , it’s worth to review and explore .

assuming 1m, differential of 2%, be easily 20k a year we are talking about here.

but that's just looking a 1 factor. have you considered that t-bill will come down? and then cpf could possibly go up?

 

[Kojo0403]

Évent coming up at SGX- Probably can taise questions on A35/MBH to the NikkoAM speaker

 

[reddevil0728]

Évent coming up at SGX- Probably can taise questions on A35/MBH to the NikkoAM speaker

They are the issuer doesn’t make them an expert leh

 

[Listopad]

but that's just looking a 1 factor. have you considered that t-bill will come down? and then cpf could possibly go up?

if 10 year sgs, agree that’s definitely a consideration and risk. But tbills , 1-3 year sgs kind of periods, i would take a bet that cpf oa rate will not rise that easily.

 

[reddevil0728]

if 10 year sgs, agree that’s definitely a consideration and risk. But tbills , 1-3 year sgs kind of periods, i would take a bet that cpf oa rate will not rise that easily.

Oh those short term yea for sure.

a lot of ppl shared that they have been doing that in the Tbill thread

 

[Iamnobodyla]

I think it is better to stick to the short end of the curve as the long end has already repriced for a recession. You wont make much gains in the long end if recession really occurs, but if you stick to the short end you can reinvest in equities if/when they crash next year due to recession.

You think a recession is imminent?

 

[reddevil0728]

You think a recession is imminent?

Technically inverted yield curve is a signal of that

 

[s0crates]

Just two key observations I want to make with yield curve being super high at the super short duration end.

1. Robos cash management solutions aren't as actively managed as what we expect them to be. I made this conclusion because Fullerton cash fund has a higher yield, and short duration than LGI money market and enhanced liquidity. Why would anyone hold on to the riskier, lower yield option?

2. Why does cpf not have money market funds or even cash funds? Fund managers probably didn't apply for their mmf funds to be in cpfis as they would get zero business in the past. But now that interest rates are high, and benchmark CPF OA rates are not catching up, would we see Fullerton/LGI going into the cpfis space?

If inflation rates remains high ( although signs show it is dropping) then we could see 2023 or even 2024 sustaining high yields even for short term FI products, making cpf/standard robo solutions less attractive.

Back to active management? Lol

 

[DevilPlate]

I also have the feeling that the FED will only start to pivot (lowering interest rate) at 4th qtr of 2023.

So, imo UOB 6 mth FD at 3.85% is quite attractive to lock in now.

Next Fed meeting on 14 Dec that could possibly raise another 0.5% and banks may only raise 0.25% on their FD rates thereafter.

 

[DevilPlate]

Any comments on this Fixed Income UT?
They recently adjusted up their monthly dividend payout and over 6% yield now.

PIMCO INCOME FUND CL E INC SGD-H​

https://secure.fundsupermart.com/fsm/funds/factsheet/ALZP06

 

[Iamnobodyla]

Is SSB very hard to get ?

 

[Iamnobodyla]

I’m not sure where to ask this.
From the discussions it sound like short term investments in tbills are preferred where ssg a longer term fixed income is not that attractive as the interest rate given is already priced in? I don’t really understand this but I just thought as long as interest > 2.5% cpf oa, I should invest my cash in ssg or longer term fixed income to lock in the rates as my fixed income component of my portfolio.

 

[reddevil0728]

Is SSB very hard to get ?

define what you mean by very hard? why don't ask in the SSB thread?

I’m not sure where to ask this.
From the discussions it sound like short term investments in tbills are preferred where ssg a longer term fixed income is not that attractive as the interest rate given is already priced in? I don’t really understand this but I just thought as long as interest > 2.5% cpf oa, I should invest my cash in ssg or longer term fixed income to lock in the rates as my fixed income component of my portfolio.

CPF can possibly increase interest

 

[Kojo0403]

Interest rates cycle comes and go.
it might be necessary to diversify holdings between short term instruments like T-bills and long term bond etfs like mbh/a35.

when interest rates drop, the longer term bonds will outperform with increase in prices.

 

[s0crates]

Interest rates cycle comes and go.
it might be necessary to diversify holdings between short term instruments like T-bills and long term bond etfs like mbh/a35.

when interest rates drop, the longer term bonds will outperform with increase in prices.

That's factually incomplete. Even if interest rates drop, it can drop in such a way that there is an inverted yield curve still holds and it makes sense to just hold short term yield bond funds.

Remember, if you want to lock in high, long term interest rates, just buy bonds, not bond funds. The risk profile is very very different. Like it or not MBH and A35 are riskier than just holding buy and hold a SGS security.

 

[revhappy]

There are many strategies we can employ with fixed income. But the only mistake we should avoid is to keep jumping between strategies, chances are we time it wrong and achieve the worst performance from all the strategies. For example when rates were low we chose MBH and now when rates climb, we are scared and we sell MBH and moved to T-Bills. This would be kind of locking the losses. Either stick with T-Bills forever or MBH forever.

Peter Lynch made a famous video about how nobody can predict interest rates.

 

[Kojo0403]

There are many strategies we can employ with fixed income. But the only mistake we should avoid is to keep jumping between strategies, chances are we time it wrong and achieve the worst performance from all the strategies. For example when rates were low we chose MBH and now when rates climb, we are scared and we sell MBH and moved to T-Bills. This would be kind of locking the losses. Either stick with T-Bills forever or MBH forever.

Peter Lynch made a famous video about how nobody can predict interest rates.

yep.
every instrument has a role to play.
though bond etf does not mature like sgs, it does give investor flexibility to sell the etf over the exchange if they wish to liquidate.
try selling a 10yr bond back to the market is likely to cost you a lot more.

 

[s0crates]

There are many strategies we can employ with fixed income. But the only mistake we should avoid is to keep jumping between strategies, chances are we time it wrong and achieve the worst performance from all the strategies. For example when rates were low we chose MBH and now when rates climb, we are scared and we sell MBH and moved to T-Bills. This would be kind of locking the losses. Either stick with T-Bills forever or MBH forever.

Peter Lynch made a famous video about how nobody can predict interest rates.

Let me try this one last time.

If you want certainty, stick to single bond. Not bond funds. That way you can immediately determine your returns based on your investment horizon. Any mark to market movements won't affect you.

If you just want exposure into an asset class that can some additional returns while having low/negative correlation with equities, then investing in bond funds can make sense, but it is not straightforward when yield curve inverts.

Generally there is a fair risk return profile when the yield curve is upward sloping. Meaning to say we are paid fairly for taking more duration risk by holding on to higher duration products.

We are now seeing the complexity of FI. THE YIELD CURVE IS INVERTED. No one is making a prediction here. We know the yield to maturity, we know the duration of the bond funds we are comparing (MBH/A35 and its alternatives). These are factual figures that we can use to base our judgement on.

For those folks that are still not convinced, just be aware that there were scenarios where Europe sovereign ETFs that actually had negative yield. Going by the logic of some folks here it's perfectly ok to hold on to it.

Think I said enough of this. Thanks.

 

[DevilPlate]

Agree it is kinda tricky now. Longer duration bond funds may continue to fall if high interest rate is expected to stay longer beyond 2024.

possible scenario: inflation stubbornly stay above 5% coupled with slow flat economy…..almost like stagflation

A35 may fall below $1.

 

[s0crates]

I am trying to find a safe instrument for cpf oa , that forms part of the bond allocation of my portfolio . This portion will not be reinvested in equities. So thinking of alternatives to lock in higher interest rates (yet not taking on too much credit risk).

I actually come to the conclusion that it might be better to treat CPF as the equities part of anybody's portfolio. Let the super uncompetitive interest rate from CPF OA drag on for another year or so, and we will know that politicians rather keep HDB home loan owners happy than all other CPF members. Keep equities in CPF, and let cash get access to a wider range of cash or bond like investments.

But to be fair CPFIS for equities is around 0.50% more expensive than what we can get from ETFs.

I don't care because I invest as much of my CPF in equities as possible, but these past few months is probably a rude shock to people who buy in to the rhetoric that CPF should be treated as a bond holding. I guess it is really bond like, given how stable the yields are holding. Lol.

Any comments on this Fixed Income UT?
They recently adjusted up their monthly dividend payout and over 6% yield now.

PIMCO INCOME FUND CL E INC SGD-H​

https://secure.fundsupermart.com/fsm/funds/factsheet/ALZP06

I believe this insti share class would be a better option with lower fees.

https://endowus.com/investment-funds-list/pimco-gis-income-fund-IE00BSTL7535