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United SG Dynamic Income Fund: Gain access to a diversified income portfolio

By Beansprout • 05 Nov 2023 • 0 min read

The United SG Dynamic Income Fund invests in five asset classes with the objective of offering income, growth and stability.

how to gain exposure to diversified income portfolio tbills reits deposit

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This post was created in partnership with UOB Asset Management. All views and opinions expressed in this article are Beansprout's objective and professional opinions.

What happened?

Many investors in Singapore have been putting their savings into T-bills in recent months, as the 6-month T-bill yield has stayed consistently above 3.7% since April this year.

In fact, the 6-month T-bill auction on 12 October 2023 saw a record S$14.7 billion of applications for just S$5.4 billion of T-bills issued. 

singapore 6-month t-bill auction yield nov 2023

On the other hand, the share prices of Singapore REITs have fallen sharply with the rise in interest rates. 

The iEdge S-REIT Index, which is widely regarded as the benchmark for Singapore REITs, declined by 9% in the 1-year period to 30 September 2023.1 

Following the correction, the iEdge S-REIT Index offers a 12-month historical dividend yield of 6.57% as of 29 September 2023.1

In the meantime, Singapore stocks have been relatively stable with the Straits Times Index (STI) generating a total return of 3.3% year-to-date as of 30 September 2023. This follows the total returns generated of 8.4% in 2022, outperforming major global indices. 2

This led many investors to ask us how we should allocate our portfolio between the different asset classes. 

Should we continue to park our savings in the T-bill? Or is this a good opportunity to start investing into Singapore REITs? Is there room for equities in our portfolios?

Need to build a multi-asset portfolio in an uncertain environment 

We can analyse the interest rate expectations going into 2024 to address the question on how we should allocate our portfolio between the different asset classes. 

According to the CME Fedwatch Tool as of 24 October 2023, investors are largely expecting the Fed to keep the benchmark interest rate high at 5.25% to 5.5% through early 2024, before we see the first rate cut in June 2024. 

However, such interest rate expectations are subject to change, which may then affect the performance of different asset classes.  In fact, Fed Chairman Jerome Powell said in a recent speech on 19 October 2023 that the central bank might need to raise interest rates further if economic data continues to be strong3

CME fed interest rate outlook nov 2023
Source: CME Fedwatch Tool as of 24 October 2023

As the Fed transitions from rate hikes, pause, to eventual rate cuts, investors must prepare their portfolios to weather various potential economic outcomes.

Against this backdrop, we believe that bonds, equities, and REITs can all work well together in a diversified multi-asset portfolio to deliver long term returns and a consistent dividend stream.

Introducing the United SG Dynamic Income Fund

One of the ways that we can tap on opportunities across asset classes is to actively manage our portfolios and ensure that they are diversified.

This will require us to keep updated of market developments, and switch between asset classes such as bonds, equities, and REITs to build a recession-proof portfolio.  

This multi-asset approach is a good strategy to beat inflation, but it can be a mammoth task for most to build such an all-weather portfolio.

For investors who may prefer to take a more hands-off approach, the United SG Dynamic Income Fund was recently launched to meet the needs of investors seeking to earn an attractive income while achieving stable returns in any economic condition. 

It’s worth noting that the United SG Dynamic Income Fund is a first of its kind fund to have five asset classes in one fund with the objective of offering income, growth and stability.

Let us find out more about the United SG Dynamic Income Fund

#1 – Mixed asset strategy

The United SG Dynamic Income Fund invests across five asset classes, including:

  • Singapore REITs
  • Singapore Equities
  • Singapore Bonds
  • Singapore Money Market Instruments
  • Asia Equities 

With the maximum portfolio allocation towards Asia Equities at 20%, this would mean that the fund would be investing primarily in Singapore. 

Apart from being a familiar market for us, Singapore remains an attractive market to invest in due to its stability. In fact, Singapore is also the only Asian country that has the highest AAA credit rating awarded by all 3 major credit rating agencies. 

singapore bonds reits equities tbills
Source: UOB AM

#2 – Leveraging both human expertise and technology

The fund manager doing the work here is UOB Asset Management (UOBAM), which has over 35 years of experience in managing collective investment schemes and discretionary funds. 

The portfolio allocation process will involve the main portfolio manager making the asset allocation call by applying UOBAM’s proprietary artificial intelligence (AI)-augmentation capabilities. 

Thereafter, UOBAM’s team of experienced portfolio managers who have a long track record in managing assets will take a bottom-up role in selecting the securities to invest in. 

For example, the selection of Singapore equities will be done by the portfolio manager of the United Singapore Growth Fund, which has a 4-star rating by Morningstar Research. 

Likewise, the selection of Asia equities will be done by the portfolio manager of the United Asia Fund, which also has a 4-star rating by Morningstar research. 

Following the selection of securities, the main portfolio manager will then execute on the decisions.

united sg dynamic income fund allocation tbills reits bonds
Source: UOB AM

What this means is that the fund will aim to combine both technology and human expertise to optimise volatility-adjusted returns via active asset allocation. 

united sg dynamic income fund ai allocation tbills reits bonds
Source: UOB AM

While AI only became a buzzword recently, UOBAM has been developing its artificial intelligence and machine learning (AIML) capabilities since 2018. This has allowed UOBAM to build a track record of close to five years, one of the longest in Asia. 

According to UOBAM, its integration of AIML models and analyst expertise has been shown to generate investment returns above that of benchmarks and peers.

For example, its United Greater China Fund, which applies this process, has been awarded the prestigious Refinitiv Lipper Fund Awards in the category of Best Fund over 3 Years Equity Greater China Fund, 2023.4

#3 – Attractive income

The United SG Dynamic Income Fund aims to offer investors with a potential regular monthly income of up to 6% per annum*.

The income is supported by investing across a mix of asset classes, including Singapore REITs, equities, bonds,money market instruments, and Asia equities (capped at 20%).

As shared earlier, the iEdge S-REIT Index offers a 12-month historical dividend yield of 6.57% as of 29 September 2023. 

The Straits Times Index offers a dividend yield of 5.3% as of 30 September 2023, supported by the high payouts of the banks. 

We have seen the cut-off yield on 6-month Singapore T-bill reach 3.87% in the auction on 12 October 2023. In addition, some Singapore corporate bonds are currently offering yields of up to 8%.

Put together, the United SG Dynamic Income Fund aims to offer attractive income to help beat inflation. 

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What are the risks of the United SG Dynamic Income Fund?

All investments carry risks, and we would be mindful that the United SG Dynamic Income Fund is not capital guaranteed, and distributions are not guaranteed as well. 

#1 – Investments are not capital guaranteed

Compared to the T-bill which is fully backed by the Singapore government, the United SG Dynamic Income Fund is not capital guaranteed. 

This means that you may incur potential losses in the event of a sharp market correction, as the value of the assets invested by the fund falls.

However, this is partly mitigated by the ability of the fund to actively allocate towards various asset classes across the cycle. 

For example, there may be more allocation into Singapore money market instruments in anticipation of a sharp economic slowdown. This may potentially help to reduce the maximum drawdown of the fund, as the money market instruments may not see such a significant decline in value compared to other assets. 

#2 – Distributions are not guaranteed 

While the fund aims to make regular monthly distributions of up to 6% per annum, these distributions are not guaranteed. 

For example, while the yields across various asset classes are elevated now compared to the previous decade, they may not stay high perpetually. 

This may mean that the fund manager would have to seek yields more actively through its security selection, or potentially take on more risks to generate a higher yield. 

In addition, the distributions may be made out of income, capital gains and/or capital. This may mean that in the event the yield generated by the portfolio is below 6%, there may be capital losses incurred to support the distribution of up to 6%. 

#3 – Fund management fees may erode returns 

There is currently a management fee of 1% for those who subscribe to Class A of the fund. 

These subscription and management fees may potentially lower the long-term net returns for investors of the fund. 

What would Beansprout do?

As we head into 2024, the interest rate outlook remains in focus, and will continue to affect the performance of various asset classes such as bonds, equities and REITs. 

One of the ways we can ensure our long-term financial goals are met despite the economic uncertainty is to hold a diversified portfolio across asset classes that is resilient through the market cycle. 

By leveraging both human expertise and AI, the United SG Dynamic Income Fund could potentially allow you to earn an attractive income and achieve stable returns in any economic condition. 

The recently launched fund is now available on FSMOne, Phillip Securities, Tiger Brokers, UOBAM Invest and Webull

Corporate customers can invest through UOBAM Invest for Corporates

If you are looking to invest into the United SG Dynamic Income Fund using your SRS funds, you can do so too!

Click here to learn more about the United SG Dynamic Income Fund.

sg-dynamic-income-fund-1180x332.jpg

Footnotes

Source: SGX as of 29 September 2023 

Source: SGX as of 9 January 2023

Source: Bloomberg as of 20 October 2023

4 Please visit https://uobam.com.sg/awards for the latest list of UOBAM’s awards.

*Distributions are not guaranteed. Distributions may be made out of income, capital gains and/or capital. This relates to the disclosed distribution policy as set out in the Fund’s prospectus.

Important notice and disclaimers

This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOB Asset Management Ltd (“UOBAM”) and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise, and is likely to have high volatility due to the investment policies and/or portfolio management techniques employed by the Fund. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund’s prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Applications for Units must be made on the application forms accompanying the Fund’s prospectus.

Distributions will be made in respect of the Distribution Classes of the Fund. Distributions are based on the NAV per unit of the relevant Distribution Class as at the last business day of the calendar month or quarter. The making of distributions is at the absolute discretion of UOBAM and that distributions are not guaranteed. The making of any distribution shall not be taken to imply that further distributions will be made. UOBAM reserves the right to vary the frequency and/or amount of distributions. Distributions from a fund may be made out of income and/or capital gains and (if income and/or capital gains are insufficient) out of capital. Investors should also note that the declaration and/or payment of distributions (whether out of income, capital gains, capital or otherwise) may have the effect of lowering the net asset value (NAV) of the relevant fund. Moreover, distributions out of capital may amount to a reduction of part of your original investment and may result in reduced future returns. Please refer to the Fund's prospectus for more information.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

This article was first published on 05 November 2023 .

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