Investment Strategy
Indicative asset allocation
The indicative asset allocation of the Sub-Fund is as follows:
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At least 70% of the net asset value of the Sub-Fund (“NAV”)
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Debt securities (including convertible bonds), which may be denominated in
currencies including but not limited to USD, EUR, HKD or offshore RMB (such offshore RMB
denominated debt securities are also referred to as “Dim Sum” bonds).
Up to 100% of the Sub-Fund’s assets may be invested in debt securities which
are unrated or rated below investment grade.
Such debt securities may be issued or traded in developed markets or emerging
markets.
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Up to 30% of the NAV in aggregate
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- Onshore RMB denominated debt securities issued in the PRC that are traded on the interbank
bond market or the listed bond market in the PRC (up to 20% of the NAV)
- Collateralised and/or securitised products (including asset backed securities, mortgage
backed securities and asset backed commercial papers)
- Equity securities
- Other collective investment schemes and money market funds
- Financial derivative instruments (“FDIs”) for investment purpose
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Principal investments
The Sub-Fund will invest at least 70% of its NAV globally in a portfolio of debt securities,
which may be denominated in currencies including but not limited to USD, EUR, HKD or offshore RMB (such offshore
RMB denominated debt securities are also referred to as “Dim Sum” bonds, i.e. bonds issued outside China but
denominated in RMB).
The Sub-Fund has no particular focus in terms of credit rating in the selection of debt
securities. Up to 100% of the Sub-Fund’s assets may be invested in debt securities which are unrated or rated
below investment grade by Fitch Ratings or Moody’s or Standard and Poor’s, including (not limited to) listed and
unlisted bonds, government bonds, convertible and non-convertible bonds, fixed and floating rate
bonds or other similar securities. A debt security is considered to be non-investment
grade if its credit rating is:
- (in the case of a long-term debt security) below BBB- by Standard & Poor’s and Fitch Ratings or below
Baa3 by Moody's or equivalent rating as rated by an international credit rating agency; or
- (in the case of a short-term debt security) below A-3 by Standard & Poor’s or below F3 by Fitch
Ratings or below P-3 by Moody’s or equivalent rating as rated by an international credit rating agency.
For split credit ratings, the lowest rating shall apply to determine whether a debt security is
non-investment grade. For the purpose of the Sub-Fund, “unrated” refers to where neither the instrument itself
nor its issuer has a credit rating assigned by international credit rating agencies. For a debt security which
itself does not have a credit rating, the Manager will assess the debt security by reference to the credit
rating of the issuer, the guarantor or the keepwell provider.
Moreover, the Sub-Fund has no particular focus in terms of geographical region and may invest
significantly in any one region or country. 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 Sub-Fund’s assets.
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). 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 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 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. Senior non-preferred debts, also known as non-preferred senior (NPS) or Tier 3 debts,
are unconditional, senior and unsecured obligations issued by a financial institution, and rank pari passu
amongst themselves and senior to subordinated notes, but junior to senior preferred notes and any claims
benefiting from legal or statutory preferences.
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 will invest in a broadly diversified portfolio of debt securities with no fixed
duration, term structure or industry sector weightings in the allocation of assets in developed and/or emerging
markets. Selection of investments will be determined by the availability of attractive investment
opportunities.
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, and investments in investment grade debt
securities may temporarily increase to up to 100%.
Other debt securities
The Sub-Fund may invest up to 20% of the NAV in onshore RMB denominated debt securities issued
in the PRC that are traded on the interbank bond market or the listed bond market in the PRC, which may include
investments in debt securities issued by or fully guaranteed by the PRC government and/or government related
entities and urban investment bonds (城投債). Urban investment bonds are debt instruments
issued by local government financing vehicles ("LGFVs") in the China listed bond and interbank bond market.
These LGFVs are separate legal entities established by local governments and/or their affiliates to raise
financing for public welfare investment or infrastructure projects.
Equity securities
The Sub-Fund may also invest less than 30% of its NAV in shares listed on stock exchanges,
including but not limited to 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.
Collateralised and/or securitised products
The Sub-Fund may invest up to 30% of its Net Asset Value in collateralised and/or securitised
products such as asset backed securities (“ABS”), mortgage backed securities (“MBS”) and asset backed commercial
papers (“ABP”) issued or guaranteed by governments, government agencies or supranational bodies or companies in
both developed and emerging markets globally. Such products may be synthetic.
Financial derivative instruments (“FDIs”) and other investments
The Sub-Fund may also invest in units in any unit trust or shares in any mutual fund
corporation or any other collective investment scheme (including those managed by the Manager or its connected
persons) authorised by the SFC or in recognised jurisdiction schemes and may 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 will not invest more than 30% of its NAV in the above
instruments/investments.
The Sub-Fund may invest up to 50% of the NAV in sale and repurchase transactions and borrow 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.
For sale and 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 will be used for
liquidity management, re-investment and hedging purposes, subject to the relevant requirements set out
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 section “Investment Objective, Strategy and Restrictions” in the
Explanatory Memorandum. The Sub-Fund will not enter into any securities lending or reverse repurchase
transactions or similar over-the-counter transactions. The Sub-Fund will not write options.
