Investing in fixed income assets

In November’s FOMC meeting, the Fed maintained the FFR at 5.25-5.50%. US Treasuries faced heavy losses in October, with the 10Y UST hitting 5.00% but have now retreated to 4.39% as at 22 November. The anticipation of a prolonged tight monetary policy into the next year was the main factor behind the increased yields. Robust 3Q2023 US GDP performance reinforced investors’ expectations of the sustained tight monetary policy throughout the coming year. But the good news is the ongoing disinflationary trend is expected to create a more predictable trajectory for monetary policy, mitigating rate volatility. Numerous factors could impact future yield trends, and although the outlook is uncertain, historical patterns suggest favourable returns in high-quality fixed income during the year following the culmination of the Fed’s hiking cycle.

In Malaysia, MGS mirrored the movement of UST in October. In the November MPC meeting, BNM maintained the OPR at 3.0%, affirming a supportive monetary policy stance aligned with the current evaluations of inflation and growth prospects. In 3Q23, headline and core inflation averaged 2.0% and 2.5%, respectively, with expectations of ongoing moderate inflation into 2024. We think OPR will likely stay at current level as the primary focus of BNM’s monetary policy is to maintain a sustainable growth momentum in Malaysia’s economy. With the OPR already at a supportive level conducive to sustained economic growth, adjustments may not be necessary.

Given this context, we reaffirm the significance of incorporating fixed income in the portfolio, particularly for diversification purposes. Our perspective on fixed income remains largely consistent with what it was six months ago. Ultimately, investing in fixed income will give exposure to the corporate bonds return and potentially giving higher return than the cash investment (see Table 1).

Table 1: Corporate Bond Ratings as at 31 Oct 2023

Source: Bank Negara Malaysia

Four compelling advantages of Fixed Income Investing

1. Fight against Inflation

• Bonds can serve as a valuable tool for retail investors to combat the erosive effects of inflation, which reduces the purchasing power of money over time.
• By investing in bonds, you can potentially earn a fixed interest rate, which outpaces inflation, helping to protect and grow your wealth in real terms.

1. Asset Diversification

• Diversification, a fundamental investment strategy, involves incorporating bonds into your portfolio to spread risk and mitigate the impact of market volatility.
• Bonds tend to have a lower correlation with stocks, making them a valuable asset class for risk management, ensuring a more balanced and stable investment portfolio.

1. Saving Mechanism

• Bonds can function as a structured saving mechanism for retail investors. When you buy bonds, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of your principal at maturity.
• This can be a disciplined way to save money over time while earning a predictable income stream.

1. Cash Flow Planning

• Retail investors can tailor their bond investments to suit their cash flow needs.
• Short-term bonds can provide liquidity for immediate expenses, while longer-term bonds can help secure future financial goals.
• This strategic approach allows for efficient cash flow management and financial planning.

Our offerings: Phillip Managed Account for Retirement (PMART) and Phillip Managed Account (PMA) Unit Trust Mandates

Phillip Capital Malaysia offers a wide range of investment portfolios designed to meet your unique investment preferences and financial goals. Our investment offerings include Unit Trust Mandates that cater to investors who are interested in investing in both domestic equities and fixed income securities, as well as regional markets.

One of our offerings, the PMART UT, is a portfolio of EPF approved unit trust funds managed by award-winning fund managers. It allows investors to invest in multiple unit trust funds through a single investment and is reviewed and adjusted quarterly or as needed in response to major events. Separately, PMA UT is ideal for cash investors seeking a tailored investment solution via investment in multiple unit trust funds through a single investment. We offer both conventional and Shariah-compliant options to accommodate the preferences of all investors. We also offer both Moderate and Aggressive mandates that cater to different investors’ level of risk appetite.

Our asset allocation for PMART UT and PMA UT for the month of Oct 2023 is as follows. We include fixed income in our portfolio at a weightage ranging from 7% to 16% (depending on whether it is conservative or aggressive), which we believe can aid in diversification and reduce potential downside risks associated with equities.

1. PMART UT (Conventional)

2. PMART UT (Shariah)

3. PMA UT (Conventional)

4. PMA UT (Shariah)

Please click on the link to learn more or email us at cse.my@phillipcapital.com.my if you require any further information.

Disclaimer:

The information contained herein does not constitute an offer, invitation or solicitation to invest in Phillip Capital Management Sdn Bhd (“PCM”). This article has been reviewed and endorsed by the Executive Director (ED) of PCM. This article has not been reviewed by The Securities Commission Malaysia (SC). No part of this document may be circulated or reproduced without prior permission of PCM. This is not a collective investment scheme / unit trust fund. Any investment product or service offered by PCM is not obligations of, deposits in or guaranteed by PCM. Past performance is not necessarily indicative of future returns. Investments are subject to investment risks, including the possible loss of the principal amount invested. Investors should note that the value of the investment may rise as well as decline. If investors are in any doubt about any feature or nature of the investment, they should consult PCM to obtain further information including on the fees and charges involved before investing or seek other professional advice for their specific investment needs or financial situations. Whilst we have taken all reasonable care to ensure that the information contained in this publication is accurate, it does not guarantee the accuracy or completeness of this publication. Any information, opinion and views contained herein are subject to change without notice. We have not given any consideration to and have not made any investigation on your investment objectives, financial situation or your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any persons acting on such information and advice.