Searching for yield accretive unit trust portfolios

In the current rate of low interest rate environment, yield seeking investors are increasingly scouting for high dividend yielding unit trust portfolios as one of the ways to stay ahead of the current low inflation-adjusted bank savings rates. For those savvy investors who do not wish to just settle on putting aside excess cash into CPF savings accounts where risk-free interest rates range from 3.5 per cent per annum for Ordinary Account, to as much as 4 per cent per annum, for Special Account, they can perhaps look into creating yield accretive dividend unit trust portfolios that will help them maintain their current lifestyles, and also limit their exposures to the current market volatilities.

Top unit trust products that are highly sought after

The four unit trust products that most investors have been reviewing include Allianz Income and Growth Fund; Phillip Singapore Real Estate Income Fund; Schroder Asian Income Fund; United Overseas Bank Asset Management’s United SGD Fund, and the First State Dividend Advantage Fund . The three-year annualised returns for these unit trust funds range from around 3 per cent to 8 per cent per annum.

A summary table of the three-year annualised returns is shown below:

Fund name Average 3-year annualised returns (%)
Allianz Income and Growth Fund 5.01% to 5.74%
Phillip Singapore Real Estate Income Fund 8.4%
Schroder Asian Income Fund 5.9% to 7.7%
UOD United SGD Fund 2.9%
First State Dividend Advantage 8.9%

Source: Fund Factsheets; Phillip Securities Pte Ltd (Fund performance information are as of August to September 2016)

Allianz Income and Growth Fund

The fund’s investments are focused in a combination of common equities, and other equity securities, debt securities and convertible securities. The performance history of the fund is as follows:

Performance History Year-to-date 3 Months 1 Year 3 Years 3 Years (pa) Since Inception (pa)
NAV - NAV (%) 6.65% 4.77% 6.01% 17.05% 5.39% 7.73%
Offer - Bid (%) 1.31% -0.47% 0.71% 11.20% 3.60% 6.58%

Source: Fund Factsheet (August 2016)

Portfolio Mix

Source: Fund Factsheet (As of August 2016)
Source: Fund Factsheet (As of August 2016)

The Allianz Income and Growth Fund has a minimum investment requirement of S$1,000 with subsequent investment amounts of S$500.The annual management fee is 1.25 per cent, and annual trustee fee is 1.5 per cent. There is no available information on the overall expense ratio. The unit trust is also eligible for cash and/or Supplementary Retirement Scheme (SRS).

Phillip Singapore Real Estate Income Fund

The fund is focused on achieving medium to long-term capital appreciation and a regular stream of income by mainly investing in real estate investment trusts (Reits) listed in Singapore, including warrants, bonds and convertible securities issued by Reits. This is a closed-end fund managed by Phillip Capital Management (S) Pte Ltd and the current fund size by assets under management (AUM) is S$50.07 million as of August 2016.

The minimum subsequent investment is S$100, and the minimum holding is 1,000 units. The initial sales charge is 3 per cent, along with other charges including an annual trustee fee of 0.09 per cent to 0.12 per cent.

The fund performance table is as follows:

Total Returns Fund (Class A SGD) Benchmark
Since Inception 62.21% 64.08%
1 month 0.75% 1.09%
3 months 6.63% 7.64%
Year-to-date 12.99% 14.44%
1 year 13.70% 16.04%
3 years 27.32% 30.92%
Annualised Returns
Since Inception 10.26% 10.54%
3 years annualised returns 8.39% 9.40%

Source: Fund Factsheet (As of August 2016)

On a 3-year annualised return comparison, the Phillip Singapore Real Estate Income Fund lagged the benchmark by around 100 basis points (bps). However, with an average dividend yield of close to 5.12 per cent as of July 2016, investors might want to take into account the stability of the yield returns, instead of chasing for higher capital returns. Moreover, the portfolio of the fund consists of mostly Singapore Reits (S-Reits), and is structured as an income fund.

However, investors might also want to take into consideration the risks of a sudden hike in interest rates which might make income-yielding investments like Reits appeared less favourable as compared to equities, and other higher yielding savings vehicles.

Schroder Asian Income Fund

The fund’s investment objective focuses on providing income and capital appreciation over the medium to long-term by investing primarily in Asian equities (including Reits) and Asian fixed income securities. The fund may also use financial derivatives from time to time as part of the investment process.

The fund’s performance table is shown as follows:

Performance (%) 3-months 6-months 1 year 3-years pa 5-years pa 10-years pa Since Inception pa
Fund (bid-to-bid) 5.4% 9.4% 10.2% 7.7% N/A N/A 8.9%
Fund (offer-to-bid) 0.1% 3.9% 4.6% 5.9% N/A N/A 7.7%

Source: Fund Factsheet (As of September 2016)

Please note that offer-to-bid returns include upfront load (charges) when investors purchase the fund units, while bid-to-bid returns exclude the charges. The fund also accepts subscriptions in cash or SRS funds. The initial sales charge is up to 5 per cent with annual management fee of 1.25 per cent.

The fund’s asset allocation by sector

Source: Fund Factsheet
Source: Fund Factsheet

By Country

Source: Fund Factsheet
Source: Fund Factsheet

Based on both diagrams break down by sector and country, the largest weightages of the fund are Financials and Hong Kong respectively. Given the spate of robust US financial results coming from financial institutions like JP Morgan Chase NA, Bank of America, and Goldman Sachs, among others, it appeared that the fund is positioned to capture such potential gains coming from the sector. However, the potential downside might be the prolonged market uncertainties that will limit trading volumes, and this could result in lower fees income earned from trading. However, in an increasing interest rate environment, banks and financial institutions will usually try to focus on the widening the interest rate margins as one of the ways to ride on the eventual normalisation of interest rates.

United SGD Fund

The United SGD Fund is a fixed income fund managed by UOB Asset Management. The investment objective of the fund is to place assets in money market and short-term interest bearing debt instruments and bank deposits with the objective of achieving a yield enhancement over Singapore dollar denominated deposits. Since the fund’s inception in May 1998, the overall AUM size is around S$1.04 billion.

The fund’s initial subscription amount is S$1,000 and subsequent investment is S$500. The front-load fee is 2 per cent, along with management fees of 0.6 per cent per annum.

The fund’s performance table is shown as follows:

Performance NAV (%) Benchmark (%)
1 month -1.68% 0.10%
3 months -0.69% 0.28%
6 months 0.72% 0.58%
1 year 2.52% 1.10%
3 years 2.88% 0.63%
5 years 3.63% 0.45%
10 years 4.03% 0.79%
Since Inception 3.31% 1.24%

Source: Fund Factsheet, Lipper, Phillip Securities Pte Ltd (As of August 2016)

Fund’s characteristics (As at 31 August 2016)

Effective Duration 1.8 years
Number of Issues 72
Weighted Average Maturity 2.4 years
Weighted Average Yield-to-Maturity 2.4%
3 years annualised standard deviation 0.7%

Source: Fund Factsheet

The fund’s largest exposure by country and sector are China and financials with 37.68 per cent and 52.23 per cent respectively. According to the fund commentary, the fund managers think that there is a huge investor appetite for yield which could continue to push demand into emerging-market bonds. The managers noted that about US$14 billion are being deployed into emerging-market debt over the past four weeks according to a weekly report of fund flows tracked by Bank of America Merrill Lynch. This resulted in investors seeking to limit exposures from post-‘Brexit’ Europe and into new debt issues in Asia where fund flows surged to over US$17 billion in July in the form of new issues with an average book cover ratio of 2.3 according to ANZ.

First State Dividend Advantage Fund

This fund is one of the few Central Provident Fund (CPF) approved unit trust products for inclusion in the CPF Investment Scheme or CPFIS. The objectives of the fund are to invest substantially all of its assets into a fund called the First State Asian Equity Plus Fund.

The fund has been in inception since December 2004, and its AUM as of August 2016 is around S$1.92 billion. The minimum investment amount is S$1,000 with subsequent investment amounts of S$100. The management fee is 1.5 per cent per annum, but initial charge is 5 per cent (cash/SRS), and 3 per cent (CPF – Ordinary Account).

The fund’s performance table is as follows:

Annualised performance in SGD (%) 1 year 3 years 5 years 10 years Since Inception
Fund (ex-initial charges) 7.3% 10.7% 9.6% 8.4% 9.4%
Fund (inc initial charges) 2.0% 8.9% 8.5% 7.8% 8.9%
Benchmark 9.8% 6.2% 6.1% 4.5% 6.5%

Source: Fund factsheet

Given the fund’s largest exposures by country and sector in India and financials at 20 per cent and 21.9 per cent respectively, the fund appeared to be bullish about current and future prospects in India’s financial sector. However, there are some risks of such high exposures which investors might need to take into account including an unexpected faltering growth in India, and the potential impact of regulations in the financial sector which might inhibit foreign direct investments (FDI). The CPF Board has also classified the fund as higher risk with narrow focus in the Asian region.

Summary

The five unit trust products are some of the options for investors might want to consider as they seek to set up their dividend unit trust portfolios. Although unit trust investing might not fulfil some of the investor expectations including high fees, and weak fund manager performances relative to the benchmarks, retail investors might consider constructing a basket of diversified portfolios consisting various unit trusts that might assist in providing a stable income stream as part of the overall retirement planning process.

Disclaimer: This article is written for illustrative purposes and does not constitute any recommendations to buy and/or sell any investments. Please seek the advice of your financial advisers before undertaking any form of investments. I am Tay Hock Meng and working as a financial advisory consultant with Phillip Securities Pte Ltd. My MAS Representative code is THM300399401.

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I am in my mid-to-late 40s, married, and am thankful for my wife for all the things she has done. We do not plan to have kids, but are blessed with the simple lifestyle that we truly cherished with each other. I used to be from the financial services industry, having spent 12 years of financial industry experience, including three years working as a research associate for a hedge fund company in Wall Street, US, with assets under management (AUM) close to US$400 million during its peak in 2008. I am currently working as a market analyst with a Singapore-based agrochemicals company. I have a deep interest in equities trading/research and analysis, data analytics, real estate, REITs, forex, and digital currencies. I don't consider myself as an avid writer, but I hope to learn as much possible. I am a Chartered Alternative Investment Analyst (CAIA) holder and passed his Level I Chartered Financial Analyst examinations. I hope to complete my CFA examinations within the next five years. I value all the feedback provided by fellow readers and bloggers. Please provide any feedback on the work I did. Thank you readers.