In the past year, the Straits Times Index has fallen from a height of of 3,549 points to a low of 2,528 points. I think I’m surviving the 1,000 points drop rather well. Many investors would have taken on a loss to some extent, myself included, and keeping our portfolio value intact is an achievement by itself.

The volatile market from Jan-2016 to Feb-2016 has sparked reactionary activities from investors and bloggers alike. I have enjoyed a couple of online chats and email correspondences with bloggers and many of these conversations somehow linked back to ABF SG Bond Index Fund.

A portfolio performance as flat as the horizon? People would give anything just to have that! If you had held on to only this fund, it would have been an extremely boring ride coupled with sleeping soundly like a baby at night. It is none other than ABF SG Bond Index Fund.

abs-sg-vs-sti-charts

Oil price crashing to US$30 per barrel? China stock market crash/correction? US central bank interest rate hike? Poor property market? Failure to meet growth expectations? Bah. The fund factsheet as at 31-Jan-2016 had listed its 1-yr fund performance as -0.03%.

If you ignore the minor blips on the charts, only 1 word can describe the chart – boring. Tonnes of people would pay to get “boring” for the past 1-yr huh? In contrast, the peach-coloured line illustrates how the SPDR STI ETF has been performing.

A Core Component Of Bogleheads 3-Fund Portfolio

As a fund just by itself, I would not invest in ABF SG Bond Index Fund. Yes, you read me right.

But more importantly, as a core component of my portfolio, it has an extremely important role to play with its AAA-rating. Let’s re-visit a few points in my post last year.

  • Reduced volatility of portfolio –
    In the past year, it has illustrated its resilience nature. Numbers and charts do not lie.
  • Dividends from bonds provide a source of fresh funds (in addition to salary/income) for investment during bear market –
    In January 2016, I collected dividends of SGD 0.0265 per share. Not jaw-dropping fantastic but still.
  • In a severe bear market, depending on just income and dividends may not be sufficient to bring your portfolio back to your desired asset allocation. You thus have a third source of funds/ammunition/warchest in the form of your bond component. Even in a severe bear market, bonds are going to hold up pretty well (with respect to equities). Sell some of it, and buy equities –
    This is not a severe bear market. I haven’t seen the need to sell any of my ABF SG Bond Index Fund yet, but it is obvious isn’t it. I can choose to do it if I want, and I will be buying low(er) and selling high(er), with respect to each other.

Here’s another chart to illustrate its performance with respect to a global index. In good times, ABF SG Bond Index Fund is meh. But in bad times, ABF SG Bond Index Fund is woohoo.

MSCI World Index vs ABF SG Bond Index Fund

Trivial on ABF SG Bond Index Fund

The fund description states that –

The iBoxx ABF Singapore Bond Index is an indicator of investment returns of S$ denominated debt obligations issued or guaranteed by the Singapore government (or any other Asian government), a Singapore government (or any other Asian government) agency, quasi-Singapore government (or any other Asian government) entity, or supranational financial institutions.

I have never seen any of its holdings to be non-Singapore based so I was surprised to see KOREA DEVELOPMENT BANK 2.650% in the portfolio holdings list earlier this month.

abf-sg-index-fund-holdings

From Wikipedia –

Korea Development Bank (kdb, Korean: 한국산업은행, Hanja: 韓國産業銀行) is a wholly state-owned policy bank in South Korea. It was founded in 1954 in accordance with The Korea Development Bank Act to finance and manage major industrial projects to expedite industrial development and enhance the national economy. As Korea’s representative development financing bank, No. 1 arranger in Asia-Pacific project finance market and leader of domestic capital market, KDB has fostered the growth and heightened the competitiveness of strategic industries by meeting their changing financial needs. Following public policy, KDB facilitates the management normalization of troubled companies through corporate restructuring and consulting services, and provides capital for strategic regional development projects.