UBS expands fund offerings in Chinese bond markets

June 15, 2020.

Switzerland-based Asset Management has established another in a line of onshore fixed-income funds in the world’s second-biggest bond market. 

The company’s foreign-owned subsidiary in Shanghai filed the fund with the Asset Management Association of China on Friday, setting up its ninth such fund in China.

The fixed-interval bond fund from UBS Asset Management (Shanghai) Limited uses an overseas fixed maturity fund strategy to lock in expected returns within a set period. Called UBS (CN) China Yufeng Fixed Income Bond Strategic Series 5 Private Securities Investment Fund, the firm says it takes a flexible and diversified approach to allocations in an attempt to provide a “more robust” fixed-income option for institutional investors in the country.

The fund is the third bond product to be issued by UBS’ Shanghai subsidiary in this year alone. UBS said the products use cash-management and interval and flexible bond strategies to meet investors’ diverse wants for risk and return.

“In implementing its China strategy, UBS AM has consistently stressed a customer-oriented and product-based approach, to achieve our aim of becoming the ‘first call for China’ by combining overseas experience with local investment capabilities,” said Raymond Yin, head of Asia Pacific and head of China onshore at UBS Asset Management.

Its asset managers have “long been bullish” when it comes to investment potential in China’s bond market, UBS said.

“We seek alpha opportunities based on the safety cushion of allocations to rate bonds and high-grade credit bonds in the second half of the year, such as the mergers of leading players in some sectors,” said the new fund’s manager, Brian Lou. “Meanwhile, we have been tracking the credit bonds of industry leaders in real estate, infrastructure, consumers, healthcare, nonferrous metals and machinery. All of these require asset managers to conduct careful and top-down research.”

In a January report, UBS said China's onshore fixed-income markets offer “superior” yields against most global government bond benchmarks, relatively low volatility, low correlation to global asset benchmarks, safe haven properties and record-low hedging costs.

“In a world where yields are turning negative and bond markets are becoming more volatile, China's onshore fixed income markets are an attractive option for investors,” UBS said. “China bonds also offer strategic, long-term exposure to long-term megatrends in China such as the rise of the [yuan] as a reserve currency, the growth of China's pension industry, and China's rising status as one of the world's largest economies.”

UBS Group is the 14th-largest publicly traded company by market capitalization outside the U.S. UBS Asset Management reported $157 million in profit before tax in the first quarter of 2020, up 52% over a year ago. Asian Private Banker named UBS the region’s top asset manager in 2019, with $450 billion in assets under management.