Ride on higher interest rates and earn returns of up to 4.95% p.a.* with the United Fixed Maturity Bond Fund 1.

This post was created in partnership with Tiger Brokers (Singapore) Pte Ltd. All views and opinions expressed in this article are Beansprout's objective and professional opinions. 

TL;DR

• The United Fixed Maturity Bond Fund 1 offers a return of up to 4.95% p.a.¹ by investing in a portfolio of bonds with relatively lower credit risks.
• The Fund allows investors to capture higher interest rates through its holdings of bonds which mature in about 3 years, while removing the reinvestment risk of using shorter-term instruments.
• The Fund is managed by UOB Asset Management, which is one of the largest unit trust managers in Singapore based on its asset under management.
• The United Fixed Maturity Bond Fund 1 is exclusively available on Tiger Brokers, and subscription will go live on 14 November 2022. 

Following our recent write-ups on the T-bill and Singapore Savings Bonds, many in the Beansprout community have asked if there are any other investments that allow us to earn a higher interest rate.

After all, inflation is still running high and is expected to persist through next year. As such, we need to make our money work harder by putting them into investments that offer a good yield and are relatively safe.

Through Tiger Brokers, you can now get access to the United Fixed Maturity Bond Fund 1, which provides an indicative return of up to 4.95% per annum¹.

We take a closer look at the fund to find out if it can be a good alternative to T-bills and SSBs. 

What is the United Fixed Maturity Bond Fund 1?

To understand more about the United Fixed Maturity Bond Fund 1, we need to start by looking at bond funds. 

This is effectively a diversified basket of bonds managed by a professional fund manager. 

The United Fixed Maturity Bond Fund 1 would invest in a portfolio of bonds with the following characteristics:

• Investment grade bonds only
• Mature within 3 years
• Buy-and-hold strategy
• Regular dividends every 6 months²

You’re probably wondering what are investment grade bonds and why invest in them. 

Investment grade bonds have received higher ratings by credit rating agencies and are assessed by these agencies to have a lower risk of default. In other words, these bonds are generally seen to be safer.

The other key characteristic we noticed is that the fund invests in short duration bonds which mature in about 3 years. 

Many investors have shared concerns about investing in bonds due to interest rate risks that can affect the value of the bond if interest rates continue to go up. 

This is why the fund invests in short duration bonds with different tenures that closely match the 3-year tenure of the fund. 

And by holding the bonds to maturity, mark-to-market risks are minimised as the issuer will have to pay back the original principal amount (aka face value) when the bonds mature. 

What are the advantages of investing in the United Fixed Maturity Bond Fund 1?

#1 – Capture high interest rates and remove reinvestment risk of using shorter-term instruments

Interest rates have gone up sharply in the past few months after the US Federal Reserve repeatedly raised its benchmark rates.

The yields in Asian investment grade corporate bonds are also now at a 13-year high. 

The yield on the 6-month T-bill in Singapore recently reached 4.19% per annum. However, some investors have asked how can we lock-in the higher interest rates for a longer period of time. 

After all, even the Fed has projected that interest rates will peak sometime in 2023, and start declining in 2024. 

The United Fixed Maturity Bond Fund 1 allows you to capture this higher interest rate by offering an indicative return of up to 4.95% per annum¹ over the 3-year lock in period.

This would help to remove the reinvestment risk of using shorter-term instruments, including bonds that mature in less than 3 years such as the 6-month or 1-year treasury bill. 

What this means is that you would not have to worry about getting lower interest rates when your current holding of shorter duration bonds mature over the course of the next one to two years. 

It's interesting to see that the yield on the 10-year Singapore government bond is now at 3.49% (as at 3 Nov 2022). 

This is below the 6-month bond yield of 3.95% and the 1-year bond yield of 3.73%, and suggests that the market is expecting that the high interest rates we see now may come down over time. 

#2 – Track record in managing fixed income funds

The fund is managed by UOB Asset Management (UOBAM), one of the largest unit trust managers in Singapore based on its asset under management. 

According to UOBAM, it has S$36.5 billion of assets under management as of 31 March 2022. 

The fund will be managed by UOBAM’s Asia Fixed Income team headed by Joyce Tan, who joined UOBAM in 2007 and has more than 24 years of investment experience. 

Some of UOBAM’s existing cash management solutions would be the United SGD Money Market Fund and the United SGD Fund. 

The United SGD Fund saw its inception in June 1998, and has grown to now have a total asset under management of more than S$2 billion (as of 31 July 2022). 

Since its inception, it has generated an average return of 2.93% per annum (as at 31 March 2022). This has exceeded the fund’s benchmark which is fixed deposit rates, as illustrated in the table below. 

*Source: UOB Global Markets and Investment Management, as at 31 March 2022. Benchmark used from 19 June 1998 to 2 May 2021 refers to the 6-month Singapore Interbank Bid (SIBID) Rate. Benchmark used from 3 May 2021 to present refers to 12M Bank Deposit Rate. Please refer to www.uobam.com.sg/web-resources/uobam/pdf/uobam/common/benchmark-updates-notice-08-mar-2022.pdf for more information. 

**The table is for illustration purposes only. It is calculated based on the assumption of S$100,000 invested in the Fund at a net asset value of S$1 per unit in the Fund on the inception date on 19 June 1998 and staying invested till 31 December 2021, with dividends and distributions reinvested, if any. Past performance is not indicative of future performance.

What else would we consider before we invest in the United Fixed Maturity Bond Fund 1?

There are various risks that we’d consider before investing in the United Fixed Maturity Bond Fund 1. You may refer to the prospectus for the full list of risks. 

Some of the key ones to keep a look out for include default risk and redemption fee for early redemption. 

#1 – Redemption fee

While the fund offers weekly liquidity, there will be a redemption charge if you were to redeem the fund before it reaches maturity. 

After all, it is a fixed maturity bond fund. 

This will also help to safeguard the interest of all investors in the fund as there will be a reduced need for the fund manager to make short term trades to meet these redemptions. 

Hence, you’d need to be prepared to leave your money in the fund for three years, or face the risk of earning a lower yield from the redemption charge incurred. 

#2 – Default risk

As the fund invests in investment grade bonds, they are generally seen to be of lower risk by the credit agencies. 

However, lower risk does not mean zero risk. 

For example, the fund can invest in bonds which are rated BBB by S&P, which is several ratings below the AAA rating for Singapore government bonds. 

This means that there is still a risk that bond issuers could default if the economy worsens significantly and they go into financial difficulties. 

According to estimates by S&P Global Ratings, the historical default rate for such investment grade bonds was less than 1%.

There are also risk management measures that the fund manager has put in to mitigate the risk of default by single issuers. 

For example, the fund is diversified across its bond holdings. In addition, there are limits on how much exposure there can be to individual countries and sectors. This could help to limit the exposure should there be significant defaults faced within a certain country or sector. 

What would Beansprout do?

The United Fixed Maturity Bond Fund 1 is now exclusively available on Tiger Brokers, and subscription will go live on 14 November 2022. 

As there is a limit to the size of the fund, it will be available on a first come, first served basis. 

If you are keen, you can register your interest through the link here

To find out more, you can also attend the upcoming events, where additional information regarding the United Fixed Maturity Bond Fund 1 investment opportunity will be shared 

• 17th of November - Webinar

Sign up now for the free webinar on 17th November and learn more about the United Fixed Maturity Bond Fund 1.

¹Terms and conditions apply. Based on 4.95% p.a. indicative returns, actual amount could vary.

*Terms and conditions apply. Based on 4.95% p.a. indicative returns, actual amount could vary.

²Distributions (In SGD) are not guaranteed. Distributions may be made out of income, net capital gains, or (if income or net capital gains are insufficient) capital. This relates to the disclosed distribution policy as set out in the Fund's prospectus.

Important information

A prospectus for the fund may be obtained from the Manager or any of its appointed distributors. Investors should read the prospectus before deciding whether to subscribe for or purchase units in the fund ("Units"). All applications for Units must be made on application forms accompanying the prospectus or otherwise as described in the prospectus. The value of Units and the income from them, if any, may fall as well as rise. 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. Past performance of the Manager or other funds managed by the Manager and any prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the fund or the Manager.

This advertisement is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any funds mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you.

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