Thoughts on new Aberdeen Euro High Yield Bond Fund?

[DavidMavec]

I was wondering what people think about the new Aberdeen High Yield Bond Fund which is in an IPO period through this Monday October 20.

Here's what Aberdeen has to say, from http://app.response.aberdeen-asset.com/e/es.aspx?s=2021&e=61631&elq=6f389a574f744b22988570723cbe2fe7

The market for Euro high yield bonds has been growing fast as re-capitalising banks withdraw from lending and borrowers turn to public debt markets instead. By August new issuance had topped US$115bn for the year. On the demand side, net inflows into the market amounted to US$9.3bn in the year until August. The more established US dollar high yield market, by contrast, has seen redemptions.

The preference for Euro high yield bonds may reflect historically low levels of default of just 1.4%. Furthermore, with Europe’s inflation rate declining to just 0.4%, and many of its economies in danger of slipping into recession again, there is little immediate danger from rising interest rates and higher debt servicing costs.

New fund launch, Aberdeen Euro High Yield Bond Fund for opportunities to invest in Euro high yield debt

Aberdeen Asset Management Company Limited (‘Aberdeen’) set up launch event of a new fund investing in European high yield bonds, the Aberdeen Euro High Yield Bond Fund (ABEHB).
It will invest into an existing fund, the Aberdeen Global-Select Euro High Yield Bond Fund (Master Fund), listed in Luxembourg , which Aberdeen’s 12-man expert team has run for the past several years from London. The fund aims to provide an attractive total return over the long term.

There is an opportunity for domestic investors to diversify portfolios by making an allocation to European high yield bonds as underlying yields are attractive and the structural story remains solid.

The IPO of Aberdeen Euro High Yield Bond Fund (ABEHB) is from October 6-20th, 2014. The initial minimum subscription amount is 510,000 baht.

For every 500,000 baht invested in ABEHB during this period investors will get 1,000 baht-worth of units free in the Aberdeen Cash Creation fund. ABEHB will invest mainly in units of a foreign fund, Aberdeen Global-Select Euro High Yield Bond Fund (Master Fund), which shall make up at least 80% of its NAV in any accounting period. The fund’s policy is to hedge most but not all of the underlying Euro-Thai baht currency risk. The Fund risk is level 5.

[CPH]

I have been holding the Aberdeen global select euro high yield fund for years. Very nice dividend of approx. 7 % and low volatility. Could be good when Europe goes into Quantative easing.

[fletchsmile]

My thoughts: Longer term a welcome addition to the range of funds and wider choices for people investing from Thailand.

Definitely one to consider adding to a portfolio over time.

On the downside, a shame they didn't introduce it 6 or 7 years back or more. The stats since the financial crisis will look good. Unfortunately that's not going to continue and past performance over the last 5 years say, won't be repeated in the next 5 years as interest rates slowly rise and bond prices fall.

Unfortunately also a bit like the BRICs, when funds were launched here. Once things become popular and fund management start launching these new funds, it can often be a sign the party is over or at least drawing to a close. That was my thoughts on ING/ UOB's BRIC fund launched in Dec 2007 and now down 27% since inception. Great idea. Just launched after the party. The past stats look good at launch and when its being released to the mass retail market you had to wonder. Often with new themes this is common.

So for me. I'll look to add some over time, as I don't have any HYB funds in my portfolios in Thailand. (Only overseas versions). I won't be rushing in though given the next 5 year outlook, and don't think people will miss a fantastic boat setting sail. That said I'll add a bit here and there to build it up Thai based portfolios and diversify a bit more. eg there are none at the moment in my kids Thai portfolios for their future so there's a gap to fill somewhere along the line and this will help.

Cheers

Fletch

[topt]

Just curious but what are the management fees for each fund - especially as the Thai fund will be mainly hitching a ride on the coat tails of the Global select Euro fund?

[ldnguy]

"there is little immediate danger from rising interest rates and higher debt servicing costs."

The debt of Spain, Italy and Greece went up this week, so that blows that one out of the water. One day one of these countries will default. Once one defaults, others will follow. It depends what you think is likely to happen. I think there are much safer ways to make money.

[DavidMavec]

Thanks to everyone's feedback, it is appreciated.

@topt I will post the fees tomorrow when I expect to hear back as I have an email in to Aberdeen Client Services, the information about fees I have seen is vague.

[Briggsy]

I have held Newton Global High Yield Fund for several years now and it has been a consistent provider of dividends in the 4 - 6 % range. I suspect the Aberdeen fund holds a similar range of funds.

Now is probably a good time to buy these funds as the market has the jitters and high-yield, lower grade corporate bonds are generally priced cheaply during such a risk-averse period.

[DavidMavec]

Just curious but what are the management fees for each fund - especially as the Thai fund will be mainly hitching a ride on the coat tails of the Global select Euro fund?

I found out management fees are 1% front end.

Also, there is a minimum investment of 510,000 THB.

Edited October 20, 2014 by DavidMavec

[topt]

Just curious but what are the management fees for each fund - especially as the Thai fund will be mainly hitching a ride on the coat tails of the Global select Euro fund?

I found out management fees are 1% front end.

Also, there is a minimum investment of 510,000 THB.

No ongoing charges - IE annual management fee?

No back end charge - IE when you sell? No bid to offer spread?

If not then that would not appear unreasonable.

[ExpatJ]

Be careful on fees, funds in Asia charge typically 10x or more the fees that you would pay for similar funds through US or European brokers.

[DavidMavec]

Here are the fees for people who are interested.

[fletchsmile]

Those look like the fee structure that would be listed in a prospectus. Hence the terms "not more than". They will be higher than what actually gets charged. I would expect them to be similar to their emerging opportunity bond fund.

On the front end fee that also states not more than 3% but actually charges 1%. It's management fee is 1.5% p.a. and TER 1.76%. Those are actually pretty reasonable if you compare to some other places in Asia like Singapore.

http://www.aberdeen-asset.co.th/doc.nsf/Lit/FactsheetThailandOpenAEOB

Cheers

Fletch

[CaptHaddock]

Astronomically high fees for a bond fund.

[ExpatJ]

1.5% per year fees is awful.

[choochoo]

Just curious but what are the management fees for each fund - especially as the Thai fund will be mainly hitching a ride on the coat tails of the Global select Euro fund?

I found out management fees are 1% front end.

Also, there is a minimum investment of 510,000 THB.

No ongoing charges - IE annual management fee?

No back end charge - IE when you sell? No bid to offer spread?

If not then that would not appear unreasonable.

Only 1% cant be right. I bet more like 2-3%.