Category Winner: Best Asia Bond Fund - UBS (Lux) Bond Fund – Full Cycle Asian Bond (USD) P-acc
Inception Date: 2010-01-28
Total Net Assets (Mil) (2017-02-28): USD 273.37
Manager: Ashley Perrott, Ross Dilkes, Alton Gwee
M: Morningstar U: Fund Management Team
M: Could you highlight any major changes you made to the portfolio over the course of 2016? Were there any particular holding that drove the fund’s performance for the year?
U: The Fund took the opportunity to increase credit exposure in the 1st quarter of 2016, taking advantage of attractive valuations arising from a widening in credit spreads in the beginning of the year.
Over the year, credit management was a key driver of relative return; in particular, the Fund's overweights to select Indonesia and Philippine corporates as well as an overweight to oil & gas more broadly, was positive.
M: What is your outlook for 2017 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
U: The opportunities coming from both investment grade and high yield Asian USD bonds will likely see ongoing investor interest, supported by an investor base both in- and outside the region that continues to look for places to find yield and income. Whilst central bank policy in the US is likely to tighten modestly, yields around the world remain low and therefore the appeal of credit related securities will likely remain strong. The macro backdrop in Asia looks solid in the year ahead suggesting that corporate fundamentals will also remain supportive for investors in Asian credit. Demand for USD China credit assets from onshore Chinese investors has been a significant factor in the market in the past 18 months given RMB weakness and we expect this will continue. This will also provide strong technical support to the majority of the Asia credit universe. Further supportive for the overall technical picture is the heavy redemption calendar in 2017, which should support secondary market performance.
Valuations, whilst not extreme, are slightly below the average spread levels seen over recent years as a result of the strong market performance in 2016, and we therefore have a selective approach to issuer exposure and overall risk levels in the near term given upcoming political events in Europe which may cause volatility.
M: Can you comment on the macro risks in the global economy, such as the change in leadership in the US, and the significant headwinds faced by emerging markets? How do these risks affect your investment decisions?
U: The secular forces of excess capacity, aging demographics and deleveraging which have underpinned a subdued growth and inflation backdrop and provided support for fixed income assets will likely remain, but these do not preclude cyclical forces of improved global growth and higher inflation in the near term. Global economic data has shown improved strength in recent months and appears likely to continue for at least the first half of the year ahead assuming no major political upheaval in Europe.
Markets have become increasingly attuned to political factors since the 2008 crisis and the coming year is likely to be no different in terms of political events potentially outweighing economic data, at least in the first half of the year. Such events are hard to predict and often binary in nature, and therefore investors need to remain nimble, conduct detailed risk analysis of active positions and why they have them and be disciplined in their decision making, especially at times when emotions can be high.
M: How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?
U: The portfolio management team is based in Singapore, while members of the credit research team covering Asian issuers are in various locations across the region. Ashley Perrott, Lead Portfolio Manager for the Fund, is Head of the Pan Asia fixed income team which is responsible for managing Asian credit and Asian local currency portfolios. Ross Dilkes is a member of the portfolio management team, focusing on Asia credit, and is the Deputy Manager of the Fund. Ashley and Ross have been managing the Fund since 2012.
Over 2016, we increased resources of the credit research team with the hire of an additional credit analyst, based in Hong Kong.
Further growth in the Asia team is expected over the coming year, particularly in relation to UBS Asset Management's business in onshore China.
M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
U: Every investment process is evolutionary and adapts to changes in market structures and investment dynamics. We seek to continually improve all aspects, including risk management and portfolio implementation. The Asian credit market has grown strongly in recent years, demanding a close collaboration between portfolio managers and research analysts to ensure resources remain directed at the most important aspects of a rapidly changing market. We see this team based approach as continuing to be critical in the coming year.
View all Morningstar Hong Kong Fund Awards 2017 articles here.