This post was created in partnership with Fullerton Fund Management Company Ltd. All views and opinions expressed in this article are Beansprout’s objective and professional opinions.
What has happened?
With the Federal Reserve pivoting toward interest rate cuts, Singapore T-bill yields have declined in recent months.
The cut off yield for the 26 September 2024 6-month T-bill auction fell to 2.97%1, falling below 3% for the first time since September 20221.
Likewise, the cut off yield for the 17 October 2024 1-year T-bill auction declined to 2.71%1.
To compare, just six months ago at the 27 March 2024 auction, the 6-month T-bill yield stood at 3.80%1. This sharp decline highlights how significantly yields have fallen in such a short space of time.
If you’re looking for a way to continue working your money hard and to optimise your cash amid falling rates, it might be worth exploring short-term bond funds like the Fullerton Short-Term Interest Rate Fund.
The Fullerton Short Term Interest Rate Fund gives you access to a diversified portfolio of high-quality, short-term bonds.
Let’s take a deeper look at this fund to see if it could be an option to consider.
What you need to know about the Fullerton Short Term Interest Rate Fund
First, let’s take a look at the fund’s objective. The Fullerton Short Term Interest Rate Fund aims to provide medium-term capital appreciation by investing in a diversified portfolio of high-quality, short-term bonds with maturities up to 5 years.
The fund is managed by Fullerton Fund Management Company Ltd, or Fullerton, an established name in Singapore’s investment landscape.
Fullerton is part of Seviora Group. Seviora provides investors access to a wide range of multi-asset and multi strategies investment expertise in both active and alternative strategies, via its underlying asset management companies. It is a wholly-owned subsidiary of Temasek.
In my view, the three key reasons the Fullerton Short Term Interest Rate Fund may be a compelling choice in the current environment, are as follows:
- Historically attractive returns
- Relatively safe way to grow your savings
- Investment flexibility with daily liquidity2
#1 – Historically attractive returns
Incepted in 2009, the fund’s Class C share class* has performed well compared to its benchmark since its inception.
It has consistently outperformed (on a bid-to-bid basis) its benchmark, the 3-month Singapore Overnight Rate Average (SORA) + 0.6% per annum, across different time periods.
As of 30 September 2024, the fund’s 1-year bid-to-bid return is 5.07%. This exceeds the benchmark return of 4.27%.
Since the fund’s Class C’s inception, its annual bid-to-bid return has averaged 2.69% p.a. annually, well above its benchmark’s return of 1.15% p.a.
The fund’s average duration is 1.9 years as of 30 September 2024.
Compared to money market funds with an average maturity typically below 1 year, the bonds in the fund may see a more significant increase in price should interest rates fall materially.
The fund’s yield-to-worst is 4.6% p.a. as of 30 September 2024.
#2 – Relatively safe way to grow your savings
The Fullerton Short-Term Interest Rate Fund aims to achieve medium-term capital appreciation for investors. It is broadly diversified with no specific industry or sectoral emphasis, and beyond diversification looks to manage some of its credit risks by investing in high-quality credit instruments.
The average credit rating of the bonds in the portfolio is A (as of 30 September 2024), which reflects investment-grade quality and indicates that the bonds are considered to have a lower risk of default.
Where the security is not rated by external rating agencies, Fullerton’s internal rating methodology will apply.
Where the security is not rated by external rating agencies, Fullerton’s internal rating methodology will apply.
As of 30 September 2024, 34.5% of the fund’s assets are in fixed income instruments, with Singapore identified as the risk country of exposure.
The fund carefully manages currency risk. While it does hold foreign credit instruments, all foreign currency denominated bonds are fully hedged back to SGD3, meaning you’re proactively managing currency fluctuations that could potentially have an adverse impact on your portfolio.
In a nutshell, this fund could be an attractive option for conservative investors looking to optimise their cash holdings without significant quality compromise.
#3 – Investment flexibility with daily liquidity
The Fullerton Short Term Interest Rate Fund allows you to redeem your units daily (i.e. it has a daily liquidity feature4).
Upon redemption, you will receive the proceeds typically within 7 business days.
This offers you the flexibility to use the capital for other investment options that may arise within a fairly short period of time.
How does the Fullerton Short Term Interest Rate Fund compare to the Singapore T-bills and Fullerton SGD Cash Fund in terms of product features?
Here is a summary of how the Fullerton Short Term Interest Rate Fund compares to the Fullerton SGD Cash Fund and Singapore T-bills in terms of features.
| Characteristic | Fullerton Short Term Interest Rate Fund | Fullerton SGD Cash Fund | Singapore T-bills |
|---|---|---|---|
| Minimum initial subscription | None – except for share classes A, B1, R (min. subscription of S$100,000 each), and B (min. subscription of S$1 million | None – except for share classes B and E (min. subscription of S$1 million and S$10 million respectively) | S$1,000 |
| Maximum investment | No limit | No limit | No limit |
| Capital Guaranteed | Not capital guaranteed | Not capital guaranteed | Receive principal amount at maturity. |
| Capital Appreciation Potential | Potential for capital appreciation | Lower potential for capital appreciation | Receive principal amount at maturity. Potential for capital appreciation if interest rates fall and sold before maturity. |
| Flexibility | Daily redemption with redemption proceeds normally paid within 7 business days | Daily redemption with redemption proceeds normally paid within 7 business days | Maturity of 6-months or 12-months. No early redemption but can be sold in secondary market |
| Underlying Exposure | Diversified, quality fixed income holdings that are actively managed by the fund manager | Diversified in SGD cash and money market instruments | Single issuer investment – Singapore government treasury bills^ |
| Source: Beansprout, MAS, Fullerton Fund Management. For illustrative purposes only. Investors should note that investments in the abovementioned Funds may expose investors to risks that are different from Singapore T bills. ^ Backed by the Singapore government. |
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What should you consider before investing in the Fullerton Short-Term Interest Rate Fund?
#1 – Not capital guaranteed
While the Fullerton Short-Term Interest Rate Fund is considered a relatively lower risk product, it’s important to note that it’s not capital guaranteed.
In what instances will you experience a loss on your investment?
For example, if interest rates rise unexpectedly, the value of the bonds held by the fund could decrease, leading to a reduction in the fund’s net asset value (NAV). Selling your units in such a period could lead to a loss.
#2 – Active management
As the fund is actively managed by Fullerton Fund Management, there is a management fee of 0.5% per annum.
This means that professional fund managers are making decisions about which bonds to include in the portfolio and when to buy and sell, as they seek to optimise returns while managing risks.
It’s important to note that you’re paying management fees for the expertise of professional managers who monitor the market and make adjustments to the portfolio for you, as needed.
#3 – Potential income distributions with Fullerton Short-Term Interest Rate Fund’s distribution share classes
For investors where potential income distribution is a key consideration, the Fullerton Short-Term Interest Rate Fund has quarterly distribution share classes in SGD, USD, and AUD5.
It is important to note however that potential income distributions (if any) are at the absolute discretion of the fund manager.
Distributions may be declared out of income and/or capital of the fund. Distributions out of capital is equivalent to a reduction or return of an investor’s initial capital.
What would Beansprout do in the current rate environment?
With interest rates coming down, it’s only natural to look for ways to make your savings work harder.
The Fullerton Short Term Interest Rate Fund may offer potentially attractive returns amid falling interest rates by investing in short term bonds that may see price appreciation should short-term interest rates fall further.
While the fund is not capital guaranteed, credit risks are managed through the quality investment grade bonds held in the portfolio, which are seen to have lower default risks. Its foreign currency denominated bonds are fully hedged back to SGD3 to minimise currency risks.
You also have the choice of redeeming your units any time4, which gives you liquidity flexibility.
Learn more about the Fullerton Short Term Interest Rate Fund here and find out how to optimise your cash further.
To access the fund, Fullerton Short Term Interest Rate Fund is available through the following distributors:
- Citibank
- DBS
- Fundsupermart
- Grow with Singlife
- iFAST
- Maybank
- Moomoo
- Phillip Capital
- Standard Chartered Bank
- Tiger Brokers
- Webull
Source and Notes
1Source: MAS https://www.mas.gov.sg/bonds-and-bills/treasury-bills-statistics
2Subject to the terms and conditions of the fund’s prospectus
3Except for a 5% frictional currency limit
4Subject to the terms and conditions of the fund’s prospectus
5The quarterly distribution share classes in these currencies are the: Class C1 (SGD), Class D1 (USD-Hedged), and Class D2 (AUD-Hedged)
Disclaimers
- This is a paid advertisement by Fullerton Fund Management Company Ltd; and
- This is not financial advice or recommendation.
Important information
This publication is for information only and your specific investment objectives, financial situation and needs are not considered here. The value of units in the Fund and any accruing income from the units may fall or rise. Any past performance, prediction or forecast is not indicative of future or likely performance. Any past payout yields and payments are not indicative of future payout yields and payments. Distributions (if any) may be declared at the absolute discretion of Fullerton Fund Management Company Ltd (UEN: 200312672W) (“Fullerton”) and are not guaranteed. Distribution may be declared out of income and/or capital of the Fund, in accordance with the prospectus. Where distributions (if any) are declared in accordance with the prospectus, this may result in an immediate reduction of the net asset value per unit in the Fund. Applications must be made on the application form accompanying the prospectus, which can be obtained from Fullerton or its approved distributors. You should read the prospectus and seek advice from a financial adviser before investing. If you choose not to seek advice, you should consider whether the Fund is suitable for you. The Fund may use or invest in financial derivative instruments. Please refer to the prospectus of the Fund for more information. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
