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ETFs, Bonds

Top Singapore Bond ETFs: How to Choose the Best One for Your Portfolio

15 Feb 2023

Singapore Bond ETFs allow you to own a diversified basket of bonds in one trade. We find out which one might be worth considering for your portfolio.

TL;DR

  • Singapore Bond ETFs allow you to earn a potential passive income through a diversified basket of bonds at a low cost. 
  • However, you may face greater capital risk compared to a similar portfolio of bonds as the ETF price may fall when interest rates go up, and a bond ETF does not have a maturity date.
  • To decide which Singapore bond ETF is most suited for our portfolio, we would consider the credit rating and geographical exposure of the underlying bonds, dividend yield and frequency of distribution.
  • Singapore bond ETFs currently offer a dividend yield of between 2.3% to 7.7% as of February 2023. The ABF Singapore Bond Index Fund allows investors to gain access to a portfolio of Singapore government bonds.

What are Bond ETFs?

Many investors have taken an interest in bond investments in recent months, as seen in the increasing popularity of Singapore Savings Bonds and Singapore Treasury Bills. 

We’ve also been sharing more about exchange traded funds (ETFs). 

However, investors may be less familiar with bond ETFs and how they can be used for  exposure to bond investments. 

To put simply, bond ETFs allow you to diversify your portfolio across a basket of bonds at a low cost. They have grown in popularity and the total fund size of bond ETFs listed on SGX now exceeds S$3 billion. 

What are the advantages of Bond ETFs?

#1 – Diversification

Compared to owning a single bond, a bond ETF allows you to own a diversified portfolio of bonds with different maturity dates.

This would reduce the risks relating to a single issuer or a single maturity date. 

#2 – Build a fixed income portfolio in one trade

Bonds make regular interest payments, also known as coupons.

As the owner of the bond ETF, you would also be able to receive such regular interest payments. 

Hence, a bond ETF allows you to build a fixed income portfolio and earn passive income in one trade. 

What are the disadvantages of Bond ETFs?

#1 - Capital at greater risk compared to direct bond investment 

Your initial investment in a bond ETF is subject to greater capital risk compared to a similar portfolio of bonds. 

Unlike individual bonds, a bond ETF does not have a maturity date where investors will be repaid their initial investment. 

As such, there is no guarantee that you would be able to get back your initial investment.

#2 – Interest rate risk harder to mitigate

Here, it is important to note interest rate risks once again. Remember that the price of a bond goes down when interest rates go up. 

Hence, the price of a bond ETF may go down when interest rates are rising. This means that you may suffer some capital loss if you were to sell the bond ETF. 

What are the Singapore bond ETFs?

The bond ETFs listed on SGX are:

  • ABF Singapore Bond Index Fund (A35)
  • Nikko AM SGD Investment Grade Corporate Bond ETF (MBH)
  • Xtrackers II Singapore Government Bond UCITS ETF (KV4)
  • iShares JP Morgan USD Asia Credit Bond Index ETF (QL2/N6M)
  • iShares Barclays USD Asia High Yield Bond Index ETF (QL3/O9P)
  • ICBC CSOP Chinese Government Bond Index ETF (CYC/CYX/CYB)
  • NikkoAM-ICBCSG China Bond ETF (ZHS/ZHD)
Bond ETFAUM Turnover (S$m)^
ABF Singapore Bond Index FundS$975 million^167,924
Nikko AM Investment Grade Corporate Bond ETFS$525 million^337,944
NikkoAM-ICBCSG China Bond ETFRMB 1.46 billion (S$284 million)^-
iShares Asia Credit Bond Index ETFUS$68 million*12,964 (US$)
iShares Asia High Yield Bond Index ETFUS$1,803 million*

600,902 (US$)

17,353 (S$)

ICBC CSOP Chinese Government Bond Index ETFRMB 7,013 million^

147,779 (US$)

13,534 (S$)

^As of 10 February 2023 *As of 31 Jan 2023

What to consider when buying Bond ETFs?

To select a bond ETF, we would consider the following factors:

  • Underlying bond’s average credit rating
  • Dividend yield
  • Regularity of dividend payout
  • Expense ratio

Underlying bond’s average credit rating

SGX-listed bond ETFs have a range of credit ratings from AAA-rated investment grade bonds to high yield bonds.

Credit ratings reflect the financial strength of the borrower and its ability to pay back its debt.

An investment grade rating means that the bond is assessed to have a low risk of default. High yield bonds pay higher interest rates because they have a lower credit rating compared to investment grade bonds. 

Bond ETFCredit quality
ABF Singapore Bond Index FundInvestment Grade
Nikko AM Investment Grade Corporate Bond ETFInvestment Grade
NikkoAM-ICBCSG China Bond ETFA1/A+  by Moody’s/ S&P and Fitch
iShares Asia Credit Bond Index ETFInvestment grade and high yield debt
iShares Asia High Yield Bond Index ETFHigh yield bonds
ICBC CSOP Chinese Government Bond Index ETFA1/A+  by Moody’s/ S&P and Fitch

Dividend yield

SGX-listed bond ETFs have recorded 12-month dividend yield between 2.3% and 7.7%.

Bond ETFLast Twelve Month (LTM) Dividend yield*
ABF Singapore Bond Index Fund2.35%
Nikko AM Investment Grade Corporate Bond ETF3.03%
NikkoAM-ICBCSG China Bond ETF S$3.02%
iShares Asia Credit Bond Index ETF S$4.01%
iShares Asia High Yield Bond Index ETF S$7.67%
ICBC CSOP Chinese Government Bond Index ETF S$3.03%

*As of 10 February 2023. Source: SGX ETF Screener

Regularity of dividend payout

SGX-listed bond ETFs make either quarterly or semi-annual dividend payments to ETF holders. 

Bond ETF 
ABF Singapore Bond Index FundSemi-annual
Nikko AM Investment Grade Corporate Bond ETFSemi-annual
NikkoAM-ICBCSG China Bond ETFSemi-annual
iShares Asia Credit Bond Index ETFQuarterly
iShares Asia High Yield Bond Index ETFQuarterly
ICBC CSOP Chinese Government Bond Index ETFSemi-annual

Expense ratio

SGX-listed bond ETFs have an expense ratio ranging from 0.24% and 0.51%.

Bond ETFExpense ratio
ABF Singapore Bond Index Fund0.24%
Nikko AM Investment Grade Corporate Bond ETF0.26%
NikkoAM-ICBCSG China Bond ETF0.30%
iShares Asia Credit Bond Index ETF0.25%
iShares Asia High Yield Bond Index ETF0.51%
ICBC CSOP Chinese Government Bond Index ETF0.26%

What would Beansprout do?

If you’re looking to build a diversified portfolio of bonds, but do not want to go through the hassle of building a bond ladder, then it might be worthwhile to start looking at Singapore bond ETFs. 

After reading this, you’re probably wondering which Singapore Bond ETF is the best. 

The answer is, it depends what you are looking for. 

If you’re looking for the Singapore Bond ETF which offers exposure purely to Singapore government bonds, then it’s the ABF Singapore Bond Index Fund.

If you’re looking for the Singapore Bond ETF which offers exposure to Chinese bonds, then it’s the ICBC-CSOP CGB or the NikkoAM-ICBCSG China Bond ETF. 

If you’re looking for the Singapore Bond ETF which offers the highest yield, then it’s the iShares Asia High Yield Bond Index ETF. However, do note that the bonds in this ETF have a lower credit rating.

If you’re looking for the Singapore Bond ETF which offers quarterly dividend payout, then it’s the iShares Asia Credit Bond Index ETF and iShares Asia High Yield Bond Index ETF.

There’s probably a Singapore Bond ETF you can consider for your specific needs, and you can visit our ETF page to find out more about each of these ETFs.

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