ABF Singapore Bond Index Fund

ABF Singapore Bond Index Fund Review(2021): Best for Conservative, Equity and Beginner Investors

ABF Singapore bond index fund is the first-launched index fund in Singapore. It offers the safest investments with the ratings of AAA and Aaa. However, people looking for value protection due to inflation will be disappointed with its small rate of return than other investment tools. First, let us explore what an index fund is for.

What is an Index Fund?

You may have heard of the term if you are wondering where to put your savings to invest. It is a pool of money investing in components of an index. The index can be the Strait Times Index or IBoxx ABF Singapore Bond Index.

Like the Strait times index, the index is a portfolio comprising the largest thirty companies on the Singapore Stock Exchange. The IBoxx index consists of the Singapore Government or quasi-sovereign entities listed on the local exchange.

Indexes are indicative of essential corporations or government’s performance. If you invest in these components from an index, you take part in a market or sector growth.

 

Types of Index Funds

Since the birth of the first index fund, investing companies have created many index funds based on different indexes all-around markets worldwide.Of these index funds, stock, bond index bonds are popular among investors. Yet more risky index funds like commodities, derivatives, currencies, and cryptocurrencies are also available to aggressive investors.

Generally, index funds are favorable among long-term investment choices. Pensions and retirement accounts are investors for index funds.Risks differ from index funds; stocks and commodities funds are more volatile than bond funds. 

To seek advice, you should consult a financial advisor before making any decision.

If you prefer to play safe, bond index funds are a good choice. Let’s take a look at the ABF Singapore bond index fund for more.

What is ABF Singapore Bond Index Fund?

As previously mentioned, ABF is the first exchange-traded fund in Singapore. Let’s see more details:

1. Fund Details

Benchmark iBoxx ABF Singapore Bond Index Total Return Index Series 
Listing Date August 31, 2005
Fund Structure Open-ended Listed Unit Trust traded on Singapore Exchange
Lot Structure Ten units per lot
Dividend Distribution Frequency Semi-annually(The dividend decision is at the discretion of the fund manager.)
Manager Nikko Asset Management Asia Limited
Trustee HSBC Institutional Trust Services (Singapore) Limited
Total Expense Ratio 0.26% per annum(including 0.15% management fees)
Designated Market Makers Flow Traders Asia Pte. Ltd. / Phillip Securities Pte. Ltd
SGX Stock Code A35
SGX Trading Name ABF SG BOND ETF
Bloomberg Ticker SBIF SP
ISIN SG1S08926457

 

2. Fund Performance

Return(%) Three months Six months One year Three years Five years Since Inception
ADF 2.55 -1.55 -2.78 4.47 2.48 2.78
Index 2.62 -1.31 -2.28 4.82 2.81 3.08

 

Three-year Tracking Error(%) 0.29

 

3. Fund Characteristics

  • The manager invests substantial parts of the money in all assets of the index. Besides, the weighting of the assets invested is the same as that of the index.
  • The Singapore authority classifies the fund as the “Excluded Investment Product”(EIP). It means general investors can find the fund information straightforward to understand. They can invest in it without the need to pass a “Customer Knowledge Assessment(CKA).”
  • The Singapore Central Provident Fund Board includes the fund in the investment scheme – “ordinary account” and classifies it as narrow-to-medium risk.
  • ADF is a Singapore dollar-dominated index fund. The assets under management are S$1,011.17 million as of June 30, 2021.

What the Fund Invests In?

1. Investment Objectives

The fund seeks to provide investors with returns aligned with the iBoxx ADF Singapore Bond Index before fees and expenses.

Thus, It only invests in high-quality bonds such as the Singapore Government or Government-linked bonds(they refer to the government agencies, supranational and local government, and government-guaranteed). The bonds are all in the highest ratings of AAA, Aaa, AAA issued by the Standard & Poor’s, Moody’s, and Fitch.

2. The Financial Strength of Singapore 

The Singapore government is the only Asian country with three awards by the three rating agencies for the past twenty-five years, including multiple financial crises.

The country has a reserve of US$381.9 billion as of March 31, 2021. Furthermore, the government has a history of consistent budget surpluses.

3. More on the ABF Fund

The bonds issued have become a haven for investors seeking liquidity, especially when other markets are in turmoil. The assets are brands like the “Housing Development Board,” Temasek, Land Transport Authority.” 

Apart from the domestic government bonds, it also invests in other quasi-government or supranational organizations of the Asian Governments. One noteworthy example is the Export-Import Bank of Korea.

But more than 99% of the fund’s money still invests in the Singapore Government bonds or its linked securities. Moreover, close to 90% invest in Government bonds. And 60% have an expiry of one-to-three years and ten years more.

Steady returns

The fund aims to achieve returns higher than SGD risk-free rates in the mid-to-long term.

4. Performance During Crisis

Indexes 2001 Dot-Com Bust; 911 Crash 2008 Global Financial Crisis 2011 Europe Debt Crisis 2015-2016 Market Selloff 2018 Market Selloff 2020 COVID 19 Pandemic Selloff
MSCI AC World Index -14.4% -51.9% -15.3% -4.1% -13% -30.3%
iBoxx ABF Singapore Bond Index 36.2% 7.8% 6.4% 3.7% 2.8% 2%

 

The fund is a solid risk-resistant performer during market crises as the assets are low-risk government and semi-government bonds with the highest ratings.

Who is the Fund for?

Investing involves risks. You should know your risk profile before making any investing decisions. The ADF fund is fit for the types of investors alike below. You may decide which one you belong to: 

1. The Cautious Investor

Suppose you cannot put up with the frequent ups and downs of a stock market. Stocks may not be a good investment option for you. 

Most bonds pay regular coupon interests and repay the principal to you at the end of a period. So you may like the steady income streams and safety of your investments. 

  • Comparisons of bonds and stocks

You can know more about the differences from the table below:

Bonds Stocks
Corporate legal obligations An obligation to pay back principal and interest  No legal obligation to pay back share capital
Priority to claims upon bankruptcy Pay to creditors before shareholders Last in priority
Risk Low High

 

  • Bond types

More options are also available for bond investors from the table below:

Pros Cons
Government Bonds The safest investments have the highest ratings of AAA, Aaa. Low interest.
Quasi-Government Bonds Very safe investments and higher interests than the Government bonds. Not available to general investors due to large denominations.
Corporate Bonds Pay higher interests than Quasi-Government bonds. Firms with AAA ratings are considered very safe. Not available to general investors due to large denominations, e.g., S$250,000
Unit Trusts Actively managed funds’ performance depends on a fund manager’s ability to generate a higher return. Investors should review funds with no performance prudently.

Past performances are for reference only.

Exchange-Traded Funds(ETFs) Low fees and small principals Returns in line with markets only.

 

2. The Equity Investor

Even if you are an ardent investor, you may need bonds in your portfolio to reduce volatility.

The investing professionals say bond prices have a negative relationship with stock prices. That said, if stock prices go down, bonds go up in prices. People use bonds as a hedge against fluctuations and losses from their stock or commodities portfolios.

3. The Beginner Investor

Bonds offer the door for beginning investors in need of steady improvements in their experience. Most bonds provide stable income streams and guaranteed capital repayments at the end of an investment period. The beginning investors can build up their ideal portfolios gradually and progressively through bond investing.

 

What are the risks?

Life is a risky adventure, so is investing. Though bonds have less pricing volatilities than stocks and commodities, you should know potential loss may occur from investing in bonds.

  • Rating downgrade

A rating downgrade of a borrower increases the cost of interest payments. The price of a bond decreases as a result of increasing yield. Bond investors may suffer from the loss of bond prices.

  • Interest rate risk

Bond prices are sensitive to interest rate changes. When interest rates are up, the bond prices are down. Bond investors may lose due to the swings of the bond prices.

  • Tracking error risk

The fund may not invest based on the component weightings and number of bond issuers. The deviation error occurs as a result of changes in portfolio rebalancing.

The ADF fund advocates full replication of the components from the index.

 

How Does it Compare With Other Index Funds in Singapore?

The table below compares popular index funds in Singapore for your reference:

ETF Names Indexes for tracking Expense Ratios(%)
ABF Singapore Bond Index Fund iBoxx ABF Singapore Bond Index Total Return Index Series 0.26
Nikko AM STI ETF Strait Times Index 0.3
Lion Philip S-REIT ETF Morningstar Singapore REIT Yield Focus PR Index 0.54
Philip Sing Income ETF Morningstar Singapore Yield Focus Index 0.7
SPDR S&P 500 ETF Standard & Poor’s 500 Index 0.0945
SPDR Gold Shares ETF The Prices of Gold Bullion in the US Over-The-Counter Market 0.4
SPDR STI ETF Strait Times Index 0.3

 

Our Verdict

ADF Singapore bond index fund is a fund specializing mainly in Singapore and its Government related bonds market. 

If you are risk-averse and prefer conservative investments rather than aggressive one like stocks, you should choose the fund. It invests in the bonds of the highest sovereign rating AAA.

If you opt for high growth and can tolerate short-term volatilities, you should not invest in the bond as the yield is low.

 

How to Purchase ETFs

Two ways are available to buy ETFs:

1. A Lump Sum Investment

If you have a sum on hand and make a mid-to-long-term investment, ETF is a good option. However, pricing and timing are all you should pay attention to. You should consult a financial advisor for more details.

2. Regular Savings Plan

You can set up a savings plan with financial institutions, e.g., banks, insurance companies, or stockbrokers. You can use the dollar cost of averaging technique to reduce purchasing costs. 

The theory is you lower your costs in the past. And you can make profits on lower prices if the asset rises.

 

A Unit Trust or An ETF, which is better?

The table below shows the differences. 

Unit Trust ETF
Annual Fees 1.5%(on average) 0.5-0,7%
Asset compositions Various and diversified Following the index
Transaction fees S$10-20 per trade 3-5% 
Fund management styles Passively managed fund Actively managed fund
Trade Tradable on the Singapore Stock Exchange Only a price quote at the end of a business day
Marketability Highly liquid and trades all business day Purchase and sale by an issuer only

 

Conclusion

Here are the five takeaways if you are considering investing in ABF index fund:

  1. ABF Singapore bond index fund is suitable for: Conservative investors are not willing to put their money at great risks in exchange for smaller returns; Equity investors would like to rebalance their portfolios to reduce risks and desire more steady income and Beginner Investors would like to build up a portfolio gradually.
  2. Bond investors should beware of interest rate risk, a borrower’s rating risk, and tracking error risk. The risks may cause losses to investors.
  3. Compare the costs and returns from other index funds. They have a significant impact on the fund’s performance. You should know past performances are not an indicator of future performance.
  4. Learn how to invest and talk to a financial advisor before investing.

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