Mr Nigel Foo, who joined FSI in 2010, has more than 20 years of investment industry experience. His role at FSI involves formulating strategies and managing portfolios with a focus on investing in Asian USD credit and local currency debt.
He manages the First State Asian Quality Bond, which was launched in November 2016 and is available to retail investors. The fund invests in fixed-income securities issued by governments and corporates in Asia, with an aim to delivering long-term returns while minimising risks.
Mr Foo holds a Bachelor of Business Administration (major in finance) from the National University of Singapore. He is also a CFA charterholder.
Q Briefly explain your fixed-income strategy and your approach in navigating market volatility and unearthing opportunities.
A We are a long-term, research-based value investor that strives to deliver consistent and superior risk-adjusted returns. We believe taking a longer-term view backed by rigorous fundamental analysis will enhance our chances of delivering good performance.
probability of success. It also prevents a portfolio manager from excessive trading and thus minimises trading costs. PHOTO: GIN TAY FOR THE SUNDAY TIMES
Investors in fixed income should not focus solely on yield. Instead, emphasis should be on how to maximise returns while minimising risks. I have come across many instances where a fixed-income product was sold based purely on the attractiveness of its portfolio yield or a promised income distribution, which sometimes can be paid out of capital. This approach neglects the downside risks in the event of a default, which will impair portfolio returns significantly.
DON'T FOLLOW THE CROWD
As a value investor, we continually look for contrarian opportunities as we believe these will enable us to deliver superior gains over time. Putting your money on a crowd favourite is unlikely to give you an attractive payout, even if you are to get it right.
MR NIGEL FOO, on unearthing opportunities amid market volatility.
As a value investor, we continually look for contrarian opportunities as we believe these will enable us to deliver superior gains over time. Putting your money on a crowd favourite is unlikely to give you an attractive payout, even if you are to get it right.
Q What are the advantages of your particular strategy?
A Taking a long-term view gives us more time for our trade ideas to pan out and thus increases the probability of success. It also prevents a portfolio manager from excessive trading and thus minimises trading costs.
As all our trade ideas are based on rigorous research, it instils discipline in our investment process and allows for self-assessment, especially when a trade goes awry. This helps to ensure mistakes are not repeated and makes us better investors.
Q What are the key investment opportunities in fixed income for 2018?
A The opening up of the China onshore interbank bond market is something that investors cannot ignore, as this market will eventually form a significant portion of the major global bond indices. The recent spike in yields brought the 10-year Chinese government bond yield close to 4 per cent, which is an attractive level, especially when compared against the meagre developed market yields.
WORTH WATCHING THIS MARKET
The opening up of the China onshore interbank bond market is something that investors cannot ignore, as this market will eventually form a significant portion of the major global bond indices.
MR FOO, on key investment opportunities in fixed income in 2018.
We believe the yuan will also remain stable. In credit, we think investment-grade bonds offer better value than high-yield as fundamentals are much stronger, making them more resilient to market downturns.
Q What are the major risks in Asian fixed income under US President Donald Trump?
A While Mr Trump's tweets move markets and provide trading opportunities, investors should focus on how his policies, if implemented, affect the real economy. While I think Mr Trump will deliver on some of his pre-election promises, the impact on the real economy is possibly not as big as what the market perceives it to be. I do focus more on his relationship with North Korea, because should a war happen, it will be bad for all risky assets, not just Asian fixed income.
Q How are you managing your investments following the hawkish shift in rhetoric by some of the world's largest central banks?
A I am actually relieved that the US Fed has finally started normalising its ultra-easy monetary policies while the European Central Bank has started thinking of doing the same.
KEEP AN EYE ON NORTH KOREA
While I think Mr Trump will deliver on some of his pre-election promises, the impact on the real economy is possibly not as big as what the market perceives it to be.
I do focus more on his relationship with North Korea, because should a war happen, it will be bad for all risky assets, not just Asian fixed income.
MR FOO, on major risks in Asian fixed income under US President Donald Trump.
If they were to delay any further, the impact of the next crisis would be even more brutal as they would have run out of tools to support their economies.
The yield on the two-year US treasury has moved from a low of 0.2 per cent in 2011 to about 2 per cent, making short-dated bonds more attractive. We have started investing more in short-dated bonds, having avoided them for years.
If yields continue to move gradually higher, longer-term return potential will be higher as well. Thus, barring a sharp spike in interest rates, higher yield is actually good for long-term investors.
Q What trends are you seeing in the market that will impact Asia in 2018?
A The recent Chinese sovereign USD bond issuance establishes a benchmark pricing for bonds from China, which will eventually deepen our market. I am also encouraged by the multi-tranche issuance by Alibaba, which was well received by US investors who previously shunned Alibaba's inaugural bond issued three years ago.
Indian issuers have also been coming to the market, adding more diversification to the Asian universe. Meanwhile, the more developed Asian markets, including Hong Kong, Singapore and South Korea, have lagged in terms of bond issuance, which is disappointing.
Nevertheless, I believe Asian bond markets' development is progressing in the right direction, which will help generate greater investors' interest.
Q What is your investment advice for the Asian investor in 2018?
A Volatility has been too low for too long. Take some profits on those investments that have done well and be prepared to take advantage should we get a big sell-off. Don't forget to diversify and rebalance your portfolio.
Q What keeps you awake at night?
A I think a lot during the day and by bedtime I am too tired to stay awake. Thinking ahead helps me stay disciplined and not get caught off-guard by events such as Brexit or Mr Trump's election victory. Unlike many of my peers, I don't read Mr Trump's tweets. I guess that helps me sleep better too.
Q If I am not a fund manager, I would be...?
A An investment coach. Imparting my knowledge on investing and sharing my experience to help others become better investors. I get satisfaction helping others improve and develop. Teaching also allows me to see things from others' perspective, making me a well-rounded person.