Bond ETF

[LionFlyer]

The recent launch of LionGlobal Short Duration Bond Fund (Active ETF SGD) piqued my interest as I was searching for alternatives to my T-bills which are maturing in October. 

Currently considering this one as well as passive (MBH). My current horizon for my bond portfolio allocation is around 5 years as there is where i think I will retire. Was wondering if there is any opinion around active versus passive? My current conviction is interest rates will likely stablised in the near term, and was thinking to have a heavier allocation (65 - 70%) towards MBH but tweaking yearly.

[ghchua]

Hi LionFlyer,

First of all, bond funds are not really directly comparable to T-bills. T-bills are almost risk free as it is guaranteed by Singapore government while bond funds are not. Also, T-bills are normally shorter term in nature.

Secondly, normally for bond funds, actively managed ones have a higher management fee and therefore higher expenses. As we can see, LionGlobal Short Duration Bond Fund has a higher management fee than Amova SGD Investment Grade Corporate Bond Index ETF (or MBH).

Thirdly, we have to look at the duration of the fund. Amova SGD Investment Grade Corporate Bond Index ETF has a duration of around 6 years while LionGlobal Short Duration Bond Fund is around 2 years. The longer the duration, the more sensitive the fund is to interest rate movement, assuming that the credit rating of both funds are around the same. In this case, I would say that Amova SGD Investment Grade Corporate Bond Index ETF is a more volatile fund.

Personally, in current interest rate environment, I would prefer a shorter duration bond fund. Interest rate had came down quite a bit and chances of it going down further is possible, but it is already quite low especially in Singapore context. Therefore, the risk of upside is high, which means higher duration bond fund exposes you to more volatility and downside.