Fullerton Short-Term Interest Rate Fund in a falling interest rate environment

With the Federal Reserve pivoting toward interest rate cuts, Singapore T-bill yields have declined in recent months.

If you’re looking for a way to continue working your money hard and to optimise your cash amid falling rates, it might be worth exploring short-term bond funds like the Fullerton Short-Term Interest Rate Fund.

Let’s take a deeper look at this fund to see if it could be an option to consider.

The fund is managed by Fullerton Fund Management Company Ltd, or Fullerton, an established name in Singapore’s investment landscape.

Fullerton is part of Seviora Group. Seviora provides investors access to a wide range of multi-asset and multi strategies investment expertise in both active and alternative strategies, via its underlying asset management companies. Seviora is a wholly-owned subsidiary of Temasek.

In my view, the three key reasons the Fullerton Short Term Interest Rate Fund may be a compelling choice in the current environment, are as follows:

– Historically attractive returns

– Relatively safe way to grow your savings

– Investment flexibility with daily liquidity2

Incepted in 2009, the fund’s Class C share class* has performed well compared to its benchmark since its inception.

It has consistently outperformed (on a bid-to-bid basis) its benchmark, the 3-month Singapore Overnight Rate Average (SORA) + 0.6% per annum, across different time periods.

As of 30 September 2024, the fund’s 1-year bid-to-bid return is 5.07%. This exceeds the benchmark return of 4.27%.

Since the fund’s Class C’s inception, its annual bid-to-bid return has averaged 2.69% p.a. annually, well above its benchmark’s return of 1.15% p.a.

The fund’s average duration is 1.9 years as of 30 September 2024.

Compared to money market funds with an average maturity typically below 1 year, the bonds in the fund may see a more significant increase in price should interest rates fall materially.

The fund’s yield-to-worst is 4.6% p.a. as of 30 September 2024.

The Fullerton Short-Term Interest Rate Fund aims to achieve medium-term capital appreciation for investors. It is broadly diversified with no specific industry or sectoral emphasis, and beyond diversification looks to manage some of its credit risks by investing in high-quality credit instruments.

The average credit rating of the bonds in the portfolio is A (as of 30 September 2024), which reflects investment-grade quality and indicates that the bonds are considered to have a lower risk of default.

As of 30 September 2024, 34.5% of the fund’s assets are in fixed income instruments, with Singapore identified as the risk country of exposure.

The fund carefully manages currency risk. While it does hold foreign credit instruments, all foreign currency denominated bonds are fully hedged back to SGD3, meaning you’re proactively managing currency fluctuations that could potentially have an adverse impact on your portfolio.

In a nutshell, this fund could be an attractive option for conservative investors looking to optimise their cash holdings without significant quality compromise.

The Fullerton Short Term Interest Rate Fund allows you to redeem your units daily (i.e. it has a daily liquidity feature4).

Upon redemption, you will receive the proceeds typically within 7 business days.

This offers you the flexibility to use the capital for other investment options that may arise within a fairly short period of time.

While the Fullerton Short-Term Interest Rate Fund is considered a relatively lower risk product, it’s important to note that it’s not capital guaranteed.

In what instances will you experience a loss on your investment?

For example, if interest rates rise unexpectedly, the value of the bonds held by the fund could decrease, leading to a reduction in the fund’s net asset value (NAV). Selling your units in such a period could lead to a loss.

As the fund is actively managed by Fullerton Fund Management, there is a management fee of 0.5% per annum.

This means that professional fund managers are making decisions about which bonds to include in the portfolio and when to buy and sell, as they seek to optimise returns while managing risks.

It’s important to note that you’re paying management fees for the expertise of professional managers who monitor the market and make adjustments to the portfolio for you, as needed.

For investors where potential income distribution is a key consideration, the Fullerton Short-Term Interest Rate Fund has quarterly distribution share classes in SGD, USD, and AUD5.

It is important to note however that potential income distributions (if any) are at the absolute discretion of the fund manager.

Distributions may be declared out of income and/or capital of the fund. Distributions out of capital is equivalent to a reduction or return of an investor's initial capital.

With interest rates coming down, it’s only natural to look for ways to make your savings work harder.

While the fund is not capital guaranteed, credit risks are managed through the quality investment grade bonds held in the portfolio, which are seen to have lower default risks. Its foreign currency denominated bonds are fully hedged back to SGD3 to minimise currency risks.

You also have the choice of redeeming your units any time4, which gives you liquidity flexibility.

2Subject to the terms and conditions of the fund’s prospectus

3Except for a 5% frictional currency limit

4Subject to the terms and conditions of the fund’s prospectus

5The quarterly distribution share classes in these currencies are the: Class C1 (SGD), Class D1 (USD-Hedged), and Class D2 (AUD-Hedged)

1. This is a paid advertisement by Fullerton Fund Management Company Ltd; and

2. This is not financial advice or recommendation.

This publication is for information only and your specific investment objectives, financial situation and needs are not considered here. The value of units in the Fund and any accruing income from the units may fall or rise. Any past performance, prediction or forecast is not indicative of future or likely performance. Any past payout yields and payments are not indicative of future payout yields and payments. Distributions (if any) may be declared at the absolute discretion of Fullerton Fund Management Company Ltd (UEN: 200312672W) (“Fullerton”) and are not guaranteed. Distribution may be declared out of income and/or capital of the Fund, in accordance with the prospectus. Where distributions (if any) are declared in accordance with the prospectus, this may result in an immediate reduction of the net asset value per unit in the Fund. Applications must be made on the application form accompanying the prospectus, which can be obtained from Fullerton or its approved distributors. You should read the prospectus and seek advice from a financial adviser before investing. If you choose not to seek advice, you should consider whether the Fund is suitable for you. The Fund may use or invest in financial derivative instruments. Please refer to the prospectus of the Fund for more information. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.