UOB United SGD fund - diff share class?

[hygge island]

Hi, can anyone advise what is the difference between the different share class for unit trust?

For example, with SC promo rate of 0.5%+sibor, i am considering to leverage on the UOB united SGD fund. But there is class A, B, and S? What are the difference between A, B , S?

 

[Shiny Things]

For example, with SC promo rate of 0.5%+sibor, i am considering to leverage on the UOB united SGD fund. But there is class A, B, and S? What are the difference between A, B , S?

That trade won't work—it'll probably lose you money. It's a bad trade.

The UOB fund owns short-dated SGD bonds, which have very low yields. In fact, the fund's benchmark is SIBID (which is always less than SIBOR). If you're paying half a percent over SIBOR for the leverage, and earning less than SIBOR in yield, you'll be losing money.

 

[iceblendedchoc]

Hi, can anyone advise what is the difference between the different share class for unit trust?

For example, with SC promo rate of 0.5%+sibor, i am considering to leverage on the UOB united SGD fund. But there is class A, B, and S? What are the difference between A, B , S?

Usually the different classes are created under the umbrella of funds to meet regulatory and tax requirements. There could be due to currency, minimum size etc

 

[bright_84]

That trade won't work—it'll probably lose you money. It's a bad trade.

The UOB fund owns short-dated SGD bonds, which have very low yields. In fact, the fund's benchmark is SIBID (which is always less than SIBOR). If you're paying half a percent over SIBOR for the leverage, and earning less than SIBOR in yield, you'll be losing money.

Maybe he's looking at the plus fund.

 

[hygge island]

Usually the different classes are created under the umbrella of funds to meet regulatory and tax requirements. There could be due to currency, minimum size etc

Thanks. On investopedia, I understood Class A is front loaded with fee and class B is backloaded. But I couldnt find info about class S.

That trade won't work—it'll probably lose you money. It's a bad trade.

The UOB fund owns short-dated SGD bonds, which have very low yields. In fact, the fund's benchmark is SIBID (which is always less than SIBOR). If you're paying half a percent over SIBOR for the leverage, and earning less than SIBOR in yield, you'll be losing money.

Thanks ST, I begun my deeper understanding of equity/bonds 4 years ago from you, so i appreciate your advice very much. I started leveraging since the last 4 months due to lower lending rates.

However, I do not fully understand your point. I know the cliche about historical performance is not good indicator of future but I tot still it seems like a low risk bet. If I work out the maths... I invest 50k myself, borrow 150k at 0.75% (spread of 0.5%+sibor) to buy the fund Class S. Class S fund has been consistently over last 12 months giving a monthly dividend of 3.5%. Because of leverage, I get yield of 14%. Repay loan of 0.75%. I end up with yield of around 11%. Yes, if I include the 1.5% fee, it drops a little more. But still given the consistent NAV even during the sell-off in Mar/Apr, I thought it is a safe bet for my bond portion of my portfolio.
What did i miss?

 

[bright_84]

Thanks. On investopedia, I understood Class A is front loaded with fee and class B is backloaded. But I couldnt find info about class S.



Thanks ST, I begun my deeper understanding of equity/bonds 4 years ago from you, so i appreciate your advice very much. I started leveraging since the last 4 months due to lower lending rates.

However, I do not fully understand your point. I know the cliche about historical performance is not good indicator of future but I tot still it seems like a low risk bet. If I work out the maths... I invest 50k myself, borrow 150k at 0.75% (spread of 0.5%+sibor) to buy the fund Class S. Class S fund has been consistently over last 12 months giving a monthly dividend of 3.5%. Because of leverage, I get yield of 14%. Repay loan of 0.75%. I end up with yield of around 11%. Yes, if I include the 1.5% fee, it drops a little more. But still given the consistent NAV even during the sell-off in Mar/Apr, I thought it is a safe bet for my bond portion of my portfolio.
What did i miss?

your borrowing cost increases when sibor increases
your returns drop when sibor increases?

 

[hygge island]

your borrowing cost increases when sibor increases
your returns drop when sibor increases?

Yes, but I doubt rates will change much in coming 2 years. And if it does, I sell the fund.

 

[bright_84]

Yes, but I doubt rates will change much in coming 2 years. And if it does, I sell the fund.

just need to balance off that the fund value may drop because of the underlying bonds.

then again, sgd fund deals with short-dated bonds, so the risk is reduced.

if you think there's sufficient buffer against rate shocks, the plan is not without merits.

 

[FinalDestiny...]

Thanks. On investopedia, I understood Class A is front loaded with fee and class B is backloaded. But I couldnt find info about class S.

I got this from Morningstar previously:
"S shares are former no-load share classes that have been closed to new investors. If an investor would like to buy into one of those
funds for the first time, they will have to go through a broker and opt for the A, B, or C share class."

 

[revhappy]

Thanks. On investopedia, I understood Class A is front loaded with fee and class B is backloaded. But I couldnt find info about class S.



Thanks ST, I begun my deeper understanding of equity/bonds 4 years ago from you, so i appreciate your advice very much. I started leveraging since the last 4 months due to lower lending rates.

However, I do not fully understand your point. I know the cliche about historical performance is not good indicator of future but I tot still it seems like a low risk bet. If I work out the maths... I invest 50k myself, borrow 150k at 0.75% (spread of 0.5%+sibor) to buy the fund Class S. Class S fund has been consistently over last 12 months giving a monthly dividend of 3.5%. Because of leverage, I get yield of 14%. Repay loan of 0.75%. I end up with yield of around 11%. Yes, if I include the 1.5% fee, it drops a little more. But still given the consistent NAV even during the sell-off in Mar/Apr, I thought it is a safe bet for my bond portion of my portfolio.
What did i miss?

This factsheet tells you everything about the fund:
https://secure.fundsupermart.com/fsm/admin/buy/factsheet/factsheet370124.pdf

The key metrics are duration, yield to maturity and expense ratio.
The weighted avg maturity is 2.88yrs
yield to maturity is 2.41%
expense ratio is 0.68%

If you deduct the expense ratio you make less than 2% annually.
So if you cost of funds is ~2%, it is almost impossible you will make money on this trade.

The only way you will make money is if yields drop further and the yield to maturity drops to like 2% or lower. But that is a bet you are making. It is not a sure shot.

I think your maths is a fail, when you say 11%. If you take a loan of 100k or 1M or 1Bn, what matters is what is the interest rate on the loan and what the return you can make on the amount. So if your interest rate is 2% and return is less than 2%, there is no way you will make money, regardless of how much you borrow.

 

[hygge island]

This factsheet tells you everything about the fund:
The key metrics are duration, yield to maturity and expense ratio.
The weighted avg maturity is 2.88yrs
yield to maturity is 2.41%
expense ratio is 0.68%

Thanks for all your inputs which helps me look more comprehensively thru different angles. I did miss looking at the yield to maturity (instead of only at the carrot of 3.5% divy) but my cost of loan is much lower than the 2% assumed, due to private banking. Overall picture is definitely not as robust as I earlier thought it was for fixed income. Building on top of what Bright_84 had summarized aptly, the fund value might suffer because a dividend 3.5% vs a yield to maturity of 2.41%+mgmt fee seems to suggest that dividend might pay from capital. But 2.41% yield to maturity is also not a full picture because the fund also invests into money market and hence another set of returns.

Anyway, time to ask my RM work harder., ask her analyst explain to me.. hehe...

 

[ycyc78]

I wonder how does this United sgd fund compare to MBH? Thanks

 

[Shiny Things]

[...] a dividend 3.5% vs a yield to maturity of 2.41%+mgmt fee seems to suggest that dividend might pay from capital.

Yep, you've nailed it. The fund will be paying the dividend from its capital.

 

[yuzu28]

Yep, you've nailed it. The fund will be paying the dividend from its capital.

Hi, sorry a noob question. What does it mean by paying dividend from its capital? Does it mean that actually not growing?

 

[bright_84]

Hi, sorry a noob question. What does it mean by paying dividend from its capital? Does it mean that actually not growing?

Means the fund manager is very happy vs amount of work.

 

[Shiny Things]

Hi, sorry a noob question. What does it mean by paying dividend from its capital? Does it mean that actually not growing?

That's right—it means that the fund is having to sell its assets to pay the dividend. This is pretty common—unit trusts that advertise suspiciously high, suspiciously consistent dividends are probably doing something like this.

(That said, I don't think what the UOB fund is doing is necessarily nefarious. It owns a bunch of nicely-seasoned bonds that are paying high coupons. Those coupons get paid out as high dividends, but those dividends will inevitably stop when the bonds mature. And because the UOB fund mostly owns short-term bonds, those high dividends will get cut pretty soon.)

 

[revhappy]

This factsheet tells you everything about the fund:
https://secure.fundsupermart.com/fsm/admin/buy/factsheet/factsheet370124.pdf

The key metrics are duration, yield to maturity and expense ratio.
The weighted avg maturity is 2.88yrs
yield to maturity is 2.41%
expense ratio is 0.68%

If you deduct the expense ratio you make less than 2% annually.
So if you cost of funds is ~2%, it is almost impossible you will make money on this trade.

The only way you will make money is if yields drop further and the yield to maturity drops to like 2% or lower. But that is a bet you are making. It is not a sure shot.

I think your maths is a fail, when you say 11%. If you take a loan of 100k or 1M or 1Bn, what matters is what is the interest rate on the loan and what the return you can make on the amount. So if your interest rate is 2% and return is less than 2%, there is no way you will make money, regardless of how much you borrow.

Returning back to this thread, I wonder if the OP actually put this trade.

In my quoted post YTM was 2.41% and now the YTM has gone up to 5.31%
and maturity has fallen to 1.49 years from 2.88 years.

This means the fund manager chose to just hold the bonds instead of selling them and buying bonds of similar duration with higher yield. So anybody who bought the fund in Oct 2020 would get close to the promised YTM of 2.4%, if they hold for 3 years.

But right now anybody getting into this fund is going to make 5.31% minus the expense ratio(endowu returns half of the expense in the form of trailer fees) in a much shorter duration. I think it is a pretty good deal. @BBCWatcher @Shiny Things

 

[owenowenno]

Returning back to this thread, I wonder if the OP actually put this trade.

In my quoted post YTM was 2.41% and now the YTM has gone up to 5.31%
and maturity has fallen to 1.49 years from 2.88 years.

This means the fund manager chose to just hold the bonds instead of selling them and buying bonds of similar duration with higher yield. So anybody who bought the fund in Oct 2020 would get close to the promised YTM of 2.4%, if they hold for 3 years.

But right now anybody getting into this fund is going to make 5.31% minus the expense ratio(endowu returns half of the expense in the form of trailer fees) in a much shorter duration. I think it is a pretty good deal. @BBCWatcher @Shiny Things

It seems a good deal.Is there a catch? Is it Front ended and you do not know the exact price you are buying in or is it the difficulty in selling large amounts eg a few hundred thousand is not possible to sell in 1 lump sum?Or this asset class will still drop in price drastically in a Black swan event?