• 08/05/2016

Phoena Tsang of BEA Union always one step ahead of her Asia HY peers: Risk and Return

Change is Not a Challenge But a Benefit

By Justin Lee

Against a challenging market environment, BEA Union Investment Management has demonstrated its flexible investment approach, winning a BENCHMARK Best-in-Class award in the Retail Mutual Fund Category for its Asia High Yield Bond Fund.

Building on a Solid Base

Pheona Tsang, Head of Fixed Income at BEA Union Investment, explained that the key to success in 2016 was to remain flexible and build upon the solid base established in previous years. The investment team adopted a more defensive position in January 2016, with an overweight allocation to investment-grade bonds and less exposure to higher beta Asian emerging market countries. The Fund’s weightings in oil and commodity bonds, metals and mining credits and to countries such as Indonesia and India was subsequently increased later on in the year, as more attractive valuations emerged.

“Although the outlook on oil and commodity prices was still uncertain, we were able to find value in some oil and commodity related credits because they were trading at distressed levels at around US$30-50 dollars. We saw that the companies had been trying to sell their assets and thought that regarding risk/reward it was a good time to invest,” explained Tsang.

“We continued to hold this view through the year and were able to capture the rebound in the oil and commodity sector over the past year. Our AUM has also grown by approximately 220% despite the transaction costs involved. This was the key strategy for 2016, having positioned the Fund well in 2015 to avoid most of the bonds that had dropped by 50% or more, we were able to pick up bonds at good prices over the last year when the market was very bearish,” she added.

China Property Developers

Despite some market concerns over Chinese property developers in 2016, the Fund still has a relatively high exposure to Chinese property bonds, at around 35% of the total portfolio at end-2016. Tsang says she does not have any major concerns about the Chinese property sector, trimming exposure in the first quarter of 2016 – a move that was purely based on more attractive valuations elsewhere.

“We have kept our position in China property in shorter-dated bonds which are maturing or callable in 1–2 years’ time. At the end of last year, there were a couple of long-dated issues from property developers in China, but we did not participate because we factored in the risk that they may need to raise more money in the offshore market. Our strategy was to keep to short-dated tenors. We were not concerned with the developers we invested in, as most of them already have completed their funding in 2015 and had restricted cash balances of 30-40% of debt or sometimes even higher,” explained Tsang.

Given that almost US$18 billion worth of Chinese property bonds is scheduled to mature or be called in 2017, Tsang believes that the sector is remains backed by strong technicals and robust demand, while larger developers are set to be the primary beneficiaries of any consolidation in the sector.

A Robust Internal Credit Rating Model

Tsang also credits BEA Union Investment’s internal credit model as playing a significant role in the Fund’s outperformance. This has been adapted from a credit-rating agency model and is regularly updated with company financial statements over the past 2–3 years. A rating is then generated, taking into account the company outlook for revenue, margins and any potential extension of capex or cashflow, and adjusted with input from both the fund manager and research analyst regarding their our outlook.

“Our internal credit model provides an independent view of the market which is crucial for outperformance, as you have to look for something that your peers are not able to see. Using the model, we can cover 80 rated high-yield issuers, 20 non-rated issuers and another 100 names in the investment-grade space. The model has helped us to find the fair value of a bond when comparing new issuance with pricing in the secondary market. Therefore the model helps us to find value. We do not look at external ratings for valuation purpose. Instead, we compare our internal rating with market valuation and market pricing,” said Tsang.

Asian High-Yield Landscape

BEA Union Investment is also upbeat on the Asian high-yield segment, on the back of an improving global growth outlook and improved global purchasing managers’ index (PMI) data. The US is also likely to increase fiscal spending and cut taxes, which will be beneficial for global growth, noted Tsang.

“With growing domestic demand combined with a better global growth outlook, we believe Asian companies are likely to benefit, and Asian high-yield names are likely to do well. Many issuers have also managed to raise funding for the next 12 months, so the sector has decent cash flow, carry and short duration. Given the volatility in rates markets, high-yield bonds with short duration will be quite attractive for fixed income investors as global government bond yields continue to remain low. I think there will be high demand for corporate bonds, especially high-yield bonds given their overall growth and earnings outlook,” Tsang added.

Tsang also expects low default rates for Asian high-yield, given that there are not many bonds maturing this year. Indeed, the default rate for Asian high-yield bonds in 2016 was only 1%, much lower than other emerging markets and the global default rate. Regarding other markets and sectors, Tsang likes China industrials, Chinese retail, Chinese cement companies and the China auto-related sector, as they are likely to be long-term beneficiaries of the increase in domestic consumption growth. The manager is also bullish on gaming names in Macau as the industry has been recovering, with some companies offering an attractive yield and carry after undergoing refinancing.

Experienced Team

Tsang explained that the team consists of four members and all come from a credit research background. The fund managers also directly trade the bonds in the portfolio, allowing them to gain a real understanding of market supply and demand, rather than when purchasing through a broker.

“We accumulate much knowledge regarding price history by directly trading the bonds and can balance our risk position as sometimes you have to take a position earlier to get a good return. We like the size of our team, as it is very efficient in terms of reaction time to market events, and our experience means that we have good relationships with issuers and can directly trade with counterparties. These are the elements that will keep us outperforming in the future,” she added. BM



Justin Lee 撰文












她表示:「我們的內部信貸評級模型能提供獨立的市場觀點,這對於投資表現能否『跑贏大市』至關重要,因為我們要先較其他人發掘不能看到的機會。利用此模型,我們可以涵蓋80個高收益評級發行商、20個非評級發行商及另外100個投資級債券發行商。該模型可以在新發行和二級市場定價比較時,計算出債券的公允價值。因此,模型有助我們評估債券價值。 我們不會只依賴外部評級的資訊,相反,我們將內部評級、市場估值和市場定價進行比較。」








她最後補充,「我們透過直接交易債券的經驗,累積不少過往價格的走勢,從中可以平衡風險承擔的程度,例如有時我們必須提前持倉,才能獲得良好的回報。我們滿意目前的團隊規模,因為面對市場變動時,所作出的反應是相當有效率。另外,我們豐富的經驗也意味着我們與發行商之間具有良好的合作關係,甚至可以直接與對家進行交易。這些元素將會造就我們,在未來日子中繼續表現優越。」 BM