Strategy
Indicative asset allocation
The indicative asset allocation of the Sub-Fund is as follows:
| 70% - 100% of the net asset value of the Sub-Fund (“NAV”)
| - USD, EUR or HKD denominated or offshore RMB denominated (“Dim Sum” bonds) offshore debt securities (including convertible bonds) with maturity not longer than 3 years. Such debt securities may be issued or traded in developed markets or emerging markets. There is no requirement on the credit rating of the debt securities.
|
- Up to 30% of the NAV in aggregate
| - Debt instruments with loss-absorption features e.g. contingent convertible bonds (“CoCos”) and senior non-preferred debts
- Perpetual bonds
- Debt securities, other than perpetual bonds, with maturity longer than 3 years and up to 10 years
- Collective investment schemes and money market instruments
- Equity securities
|
Principal investments
The Sub-Fund will invest 70% to 100% of its Net Asset Value in a portfolio of USD, EUR or HKD denominated or offshore RMB denominated (“Dim Sum” bonds, i.e. bonds issued outside China but denominated in RMB) offshore debt securities, with maturity not longer than 3 years, issued or traded in the global debt securities markets; and where the Manager believes such debt securities are being traded at significant discount to their underlying intrinsic values. The average duration of the Sub-Fund’s debt investments as a whole will be less than 3 years.
Debt securities may be issued or traded in developed markets or emerging markets. There is no set proportion between investments in developed markets and emerging markets, therefore investments in emerging markets may be up to 100% of the NAV.
Up to 100% of the Sub-Fund’s NAV may be invested in convertible bonds, issued and/or guaranteed by issuers such as corporations, financial institutions and banks. In the event convertible bonds are converted into shares resulting in deviation from the indicative asset allocation, the Manager will arrange for the shares to be sold within 10 business days.
The Sub-Fund will not invest more than 10% of its NAV in debt securities issued and/or guaranteed by a single sovereign issuer (including its government, public or local authority) which is below investment grade and/or unrated.
The Sub-Fund does not have requirement on the credit rating of the debt securities. The Sub-Fund may invest in debt securities rated investment grade, below investment grade or unrated debt securities. For the purpose of the Sub-Fund:
(i) a long-term debt security is considered investment grade if its credit rating is BBB- or higher by Standard & Poor's and Fitch Ratings or Baa3 or higher by Moody's or equivalent rating as rated by an international credit rating agency;
(ii) a short-term debt security is considered investment grade if its credit rating is A-3 or higher by Standard & Poor’s or F3 or higher by Fitch Ratings or P-3 or higher by Moody’s or equivalent rating as rated by an international credit rating agency; and
(iii) “unrated” refers to where neither the instrument itself nor its issuer has a credit rating assigned by international credit rating agencies.
The Sub-Fund will invest in a broadly diversified portfolio of debt securities with no fixed duration (but primarily with maturity of not longer than 3 years), term structure or industry sector weightings in the allocation of assets in developed markets. Selection of investments will be determined by the availability of attractive investment opportunities. Its investment horizon is not restricted geographically and it may invest in global debt securities. Countries or regions in which the Sub-Fund may invest in include Hong Kong, Singapore, the European Union and the United States. Under exceptional circumstances (e.g. market crash or major crisis) or adverse market conditions, the Sub-Fund may be invested temporarily up to 100% of its NAV in liquid assets such as bank deposits, certificates of deposit, commercial paper and treasury bills.
Other debt securities
The Sub-Fund may also invest up to 30% of the Net Asset Value in other debt securities, including perpetual bonds. Such debt securities, other than perpetual bonds, are expected to hold maturity longer than 3 years and up to 10 years. Perpetual bonds are bonds without a fixed maturity date.
The Sub-Fund may invest up to 20% of its Net Asset Value in onshore mainland China debt securities via Bond Connect. For the avoidance of doubt, save as described in the foregoing sentence, the Sub-Fund will not otherwise invest in onshore mainland China securities.
The Sub-Fund’s expected total maximum investments in debt instruments with loss-absorption features (“LAP”) e.g. contingent convertible bonds (“CoCos”) and senior non-preferred debts will be up to 30% of its NAV. CoCos may have non-viability and/or loss absorption convertible features, i.e. they are subject to compulsory conversion or may be written off entirely upon the occurrence of a trigger event which may be out of the issuer’s control. They are hybrid capital securities that absorb losses when the capital of the issuer falls below a certain level and may be compulsorily redeemed upon the occurrence of a trigger event which may be out of the issuer’s control. They are risky and highly complex investment instruments. Under certain circumstances CoCos can be converted into shares of the issuing company, potentially at a discounted price, or cause the permanent write-down to zero of the principal investment and/or accrued interest such that the principal amount invested may be lost on a permanent or temporary basis. In the event CoCos are converted into shares resulting in deviation from the indicative asset allocation, the Manager will arrange for the shares to be sold within 10 business days. The Sub-Fund may also invest in senior non-preferred debts. While these instruments are generally senior to subordinated debts, they may be subject to write-down upon the occurrence of a trigger event and will no longer fall under the creditor ranking hierarchy of the issuer. This may result in total loss of principal invested.
Equity securities
The Sub-Fund may also invest up to 30% of its NAV in shares listed on Hong Kong, Singapore or U.S. stock exchanges (including American Depositary Receipts and preference shares). This includes any listed equities the Sub-Fund may hold as a result of the conversion of the convertible bonds, i.e. the Sub-Fund’s aggregate exposure in equities will not exceed 30% of the Sub-Fund’s NAV. The Sub-Fund will not hold equities that are unlisted.
Financial derivative instruments (“FDIs”) and other investments
The Sub-Fund may invest in aggregate no more than 30% of its NAV in collective investment schemes, including ETFs, (including those managed by the Manager or its connected persons) authorised by the SFC or in recognised jurisdiction and in other collective investment schemes which are non-eligible schemes and not authorized by the SFC in accordance with the Code on Unit Trusts and Mutual Funds (the “Code”), among which no more than 20% of the Sub-Fund’s NAV will be invested in collective investment schemes which invests in short duration bonds with maturity not longer than 3 years and investments in other collective investment schemes which are non-eligible schemes and not authorized by the SFC schemes will not exceed 10% of the Sub-Fund’s NAV. For the avoidance of doubt, investments in ETFs will be considered and treated as collective investment schemes for the purposes of the Code and all investments in collective investment schemes are subject to the requirements in 7.11, 7.11A and 7.11B of the Code. Where the Sub-Fund invests in collective investment schemes which are also managed by the Manager or its connected persons, all initial charges and redemption charges on the underlying schemes must be waived. The Sub-Fund may also hold cash, deposits, and other money market instruments (such as but not limited to treasury bills, commercial papers, certificates of deposit as considered appropriate by the Manager).
The Sub-Fund may invest up to 30% of the NAV in sale and repurchase transactions and reverse repurchase transactions, and through borrowing up to 10% of its NAV with a view to creating additional income. For the purpose of the Sub-Fund, sale and repurchase transactions are transactions where the Sub-Fund sells securities such as bonds for cash and simultaneously agrees to repurchase the securities from the counterparty at a pre-determined future date for a pre-determined price. A sale and repurchase transaction is economically similar to secured borrowing, with the counterparty of the Sub-Fund receiving securities as collateral for the cash that it lends to the Sub-Fund. Reverse repurchase transactions are transactions where the Sub-Fund purchases securities from a counterparty of sale and repurchase transactions and agrees to sell such securities back at an agreed price in the future.
For sale and repurchase transactions and reverse repurchase transactions, the Manager will seek to appoint independent counterparties approved by the Manager with credit rating of BBB- or above (by Moody's or Standard & Poor's, or any other equivalent ratings by recognised credit rating agencies) or which are SFC-licensed corporations or are registered institutions with the Hong Kong Monetary Authority. Any incremental income generated will be credited to the account of the Sub-Fund after deducting any fees charged by parties operating such transactions. It is the intention of the Manager to sell the securities for cash equal to the market value of the securities provided to the counterparty. Cash obtained in sale and repurchase transactions and reverse repurchase transactions will be used for liquidity management, re-investment and hedging purposes. Where cash received by the Sub-Fund is used for re-investment, such cash may only be re-invested in accordance with Chapter 7 of the Code and the provisions set out under the section “Investment Objective, Strategy and Restrictions” in the Explanatory Memorandum.
The Sub-Fund may also invest in FDIs for hedging and investment purposes to the extent permitted by the Code and the provisions set out under the sub-section “Investment Restrictions” in the Explanatory Memorandum.
The Sub-Fund will not invest in collateralised and/or securitised products (such as asset backed securities, mortgage backed securities, asset backed commercial papers and structured products). The Sub-Fund will not enter into any securities lending or similar over-the-counter transactions. The Sub-Fund will not write options.