Capturing Global Income Opportunities

We are in an environment of very low nominal and real interest rates. For investors seeking compelling income opportunities, a high yield portfolio like Syfe Select Global Income may be the answer.

The Global Income portfolio has meaningful exposure to investment grade and high yield corporate and government bonds. The allocation to government bonds (32%) helps provide stability during times of volatility, while corporate bonds (68%) help generate better returns.

What’s more noteworthy is the portfolio’s significant allocation (55.2%) to emerging market bonds. Bonds from developed markets make up the rest of the portfolio. Emerging market bonds typically offer more attractive yields, yet have historical default rates similar to developed markets corporate bonds. 

Source: PIMCO, Moody’s, as of May 2020

Across different credit ratings, emerging market corporate bonds also have comparative or more attractive yields compared to US bonds.

Source: Fidelity

These factors make emerging market bonds a valuable diversifier that help boost the yield of the Global Income portfolio and improve risk-adjusted returns.

The Syfe Select Global Income portfolio targets a gross dividend yield of 4.25% per annum. It currently holds six bond ETFs managed by BlackRock, the world’s largest asset manager. Our investment team is also actively monitoring new opportunities for yield for possible inclusion to the portfolio. 

Here’s a closer look at the underlying holdings that form the Global Income portfolio.

Read more about our portfolio construction methodology and take a closer look at the underlying holdings that form the Global Income portfolio below.

Emerging market government bonds: EMB

The iShares JP Morgan USD Emerging Markets Bond ETF (EMB) is a popular ETF that provides diversified exposure to emerging market government and quasi-government bonds. 

All bond holdings are denominated in US Dollar and it has net assets of US$20.6 billion.

EMB’s underlying holdings are investment grade and high yield bonds such as sovereign bonds from Ecuador, Russia, Uruguay, Kuwait and Qatar. These bonds also represent the top five holdings within the fund, which has 576 holdings in total. 

Top 10 holdings, EMB, as of 20 August 2021

The top five emerging market exposures within EMB are Mexico, Indonesia, Saudi Arabia, Qatar and United Arab Emirates.

EMB pays dividends monthly. As of 30 July 2021, EMB has a 12-month trailing yield of 3.9% and annualised total returns of 5.9% over the last three years. 

Emerging market local currency government bonds: LEMB

One difference between EMB and the iShares JP Morgan EM Local Currency Bond ETF (LEMB) is the currency their holdings are denominated in. The government bond holdings within LEMB are all denominated in their local currency. This offers diversification away from the US dollar and allows investors to take advantage of currency movements.

For instance, the US dollar weakened considerably in May amid inflation expectations. A weaker US dollar means a foreign currency increases in value against the dollar, thus adding to your return on the local currency bond fund. But of course, the opposite can happen if the US dollar strengthens.

With 278 holdings, LEMB provides diversified exposure to investment grade and high yield government bonds from emerging markets. Government bonds from the Philippines, Dominican Republic and Uruguay make up the top holdings within the fund. In terms of currency exposure, the top three are Chinese Yuan, Uruguayan peso and Dominican peso. 

Top 10 holdings, LEMB, as of 20 August 2021

LEMB has US$519 million in net assets and pays dividends on an annual basis. As of 30 July 2021, LEMB has an attractive 12-month trailing yield of 4.39%. .  

Emerging market corporate bonds: CEMB

To complement the exposure to emerging market government bonds, BlackRock launched the iShares J.P. Morgan EM Corporate Bond ETF (CEMB) to offer investors diversified access to emerging market corporate bonds. 

The fund holds investment grade and high yield corporate bonds across various sectors such as industrials, utilities and financial companies, and quasi-government bonds. There are 1,048 holdings in all, so the vast majority of the allocation weightings for each bond is less than 1%.

Top holdings include bonds issued by Gaz Capital, a subsidiary of Gazprom, the world’s largest publicly listed natural gas company, Teva Pharmaceutical, which specialises in high quality generic drugs, and Ecopetrol, one of the largest petroleum companies globally.

Top 10 holdings, CEMB, 20 August 2021

The top three emerging market countries within the portfolio are China, Brazil and Mexico. 

CEMB pays dividends on a monthly basis and has US$456 million in net assets. As of 30 July 2021, its 12-month trailing yield is 3.5% and it has generated annualised total returns of 6.6% over the last three years. It also represents the largest holding (23.4%) within the Syfe Select Global Income portfolio.

High yield corporate bonds: HYG

The iShares iBoxx High Yield Corporate Bond ETF (HYG) is one of the most widely used high yield bond ETFs, with US$20 billion in net assets.

It offers diversified exposure to a broad range of US high yield corporate bonds. The top holdings within the fund are corporate bonds from Sprint, one of the largest mobile network operators in the US, Transdigm, an aerospace manufacturer, and Centene Corporation, a US healthcare insurer.

Top 10 holdings, HYG, 20 August 2021

Similar to CEMB, there are over 1,000 holdings within HYG (1,328 to be exact). This makes for a very well diversified ETF with corporate bond holdings across various sectors such as consumer cyclicals, communications and energy.

Dividends are distributed monthly. As of 30 July 2021, the 12-month trailing yield is 4.4%, and the fund has returned an impressive 5.8% in annualised returns over the past three years.

Short duration high yield corporate bonds: SHYG

Aptly named, the iShares 0-5 Year High Yield Corporate Bond ETF (SHYG) offers diversified exposure to short-term US high yield corporate bonds. It is typically used to maintain exposure to corporate bonds with potentially less interest rate risk, given the short weighted average maturity of 2 years for the fund. 

The ETF is a complement to HYG which holds bonds with longer maturities. 

SHYG holds 719 corporate bond holdings that are diversified across sectors such as consumer cyclical, energy, communications, and finance companies. 

Top holdings include Sprint, Transdigm and Caesars Entertainment, one of the world’s largest casino-entertainment providers.

Top 10 holdings, SHYG, as of 20 August 2021

Dividends are distributed on a monthly basis. As of 30 July 2021, the 12-month trailing yield is 5%, and SHYG has returned 4.7% in annualised returns over the past three years. The fund has net assets of $US5.4 billion.

Fallen angels: FALN

In the investing world, a ‘fallen angel’ refers to a bond that has been downgraded from investment grade to high yield. Historically, there’s a price anomaly that can arise when this downgrade happens, and fallen angel bonds offer an opportunity to take advantage of this for additional potential returns. 

The iShares Fallen Angels USD Bond ETF (FALN) holds 353 of such fallen angel bonds. Sprint, cruise lines Royal Caribbean and Carnival Corp, as well as British telco Vodafone round out FALN’s top holdings.

Top 10 holdings, FALN, as of 20 August 2021

FALN’s corporate bond holdings are well diversified across a range of sectors including energy, consumer cyclical, communications and technology. 

Dividends are distributed on a monthly basis. As of 30 July 2021, the 12-month trailing yield is 4.2% and FALN has returned a remarkable 10.1% in annualised returns over the last three years. The fund has net assets of US$3 billion. 

Invest for income

If you’re looking for a high yield bond portfolio, the Syfe Select Global Income portfolio may be right for you. It aims to help investors achieve better income generation through diversified fixed-income holdings, and offers attractive yields of 4.25% p.a. on average.

You can get started with no minimum investment, no lock-in period and no brokerage fees. As an added advantage, Syfe will manage your portfolio with free dividend reinvestment and automatic rebalancing, for fees as low as 0.35% per year.