Launched in 2005, the ABF Pan Asia Bond Index Fund (PAIF) pioneered the Asian fixed income ETF industry. It provides an innovative, easy-to-access and cost-efficient solution to invest in a diversified portfolio of Asian local currency government and quasi-government bonds in one single trade.
6 PAIF has delivered positive returns in 13 out of the past 18 calendar years3.
7 Offering easy and low-cost access to Asia's local bond markets, PAIF allows investors to diversify their portfolios with around 500 local currency bonds in one single trade4.
8 PAIF's portfolio has an average credit quality of A+4.
9 The Asian sovereign and quasi-sovereign local currency bond market has grown almost ten-fold since the inception of PAIF, from US$1.4 trillion to US$14.8 trillion5.
10 PAIF is a crucial part of the initiative to develop Asia's local bond markets. It started to participate in securities lending in June 2018 to deepen secondary market liquidity.
Favourable Risk-Return Profile
The macro fundamentals of many Asian governments remain robust, and they will likely continue to be a growth driver as the global economy recovers. Investors, therefore, have an opportunity to obtain a good yield pickup without taking on excessive risk. In fact, Asian bonds have historically demonstrated a risk-return profile that is proportional to that of US Treasuries.
Potential for Additional Yield via Local Currency Appreciation
We expect currency appreciation will continue to be an important source of potential returns moving forward. Current US-dollar strength has depressed currency gains in Asian local currency bonds, but over the medium to long term, there is a good chance of a rebound. In the meantime, US-dollar strength presents attractive entry opportunities for Asian local currency bonds.
A 'Back to Basics' Diversified Portfolio Construction Strategy
In the increasingly interconnected world, correlations between Asian local currency bonds and other major asset classes have inevitably risen. Still, they remain low enough to allow such assets to add valuable diversification benefits to investors' portfolios.
1Region includes Hong Kong, Japan, South Korea, Mainland China, Singapore, and Taiwan. Source: Bloomberg Finance L.P., as of 31 January 2023.
2Source: Morningstar, as of 31 January 2023.
3State Street Global Advisors, as of 31 December 2022. Past performance is not a reliable indicator of future performance. The computation basis of the calendar-year performance is based on calendar year end, NAV-to-NAV, with dividend reinvested. Calendar-year performance shows by how much the PAIF increased or decreased in value during the calendar year being shown. Performance data has been calculated in USD, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.
4State Street Global Advisors, as of 31 January 2023.
5Asian Development Bank and State Street Global Advisors, from 30 June 2005 to 31 December 2022. The calculation methodology involves taking the sum of all local currency bonds excluding corporates issued in Hong Kong, South Korea, Mainland China, Singapore, Thailand, Malaysia, Philippines and Indonesia.