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Frasers Property Bond and CapitaMall Bond

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Another day, another market correction. The recent stock market performance must have freaked out many investors new to the game. Long-term investors and financial bloggers should be having great difficulties sleeping well at night as their stock portfolio plunged in value. Should stock investors run for their lives and turn to bonds like Frasers Property Bond and CapitaMall Bond?

In the pursuit of investment returns, many had ignored the age-old wisdom of wealth diversification. In this article, the investment merits of retail bonds (Frasers Property Bond and CapitaMall Bond) and government-linked bonds are discussed.

Frasers Property

Dark side of bonds

Most wealth builders dismiss bond investing because of the perceived low yields and illiquidity. Furthermore, investing in bonds is less exciting than stocks, which is comparatively more dynamic. In my perspective, I am not a big fan of bonds either because I am currently at the asset accumulation life-stage. However, as a fixed-income asset, bonds could offer a viable form of financial instrument, especially for retirement planning purposes.

In 2018, Temasek Holdings decided to join in the fun by offering the Astrea IV Private Equity Bond (4.35%) and the Temasek Retail Bond with 2.7% interest. The difference between the two is that the former is not guaranteed by Temasek Holdings or its subsidiaries while the latter is guaranteed by Temasek Holdings.

Nonetheless, it should be highlighted that bonds are not risk-free. The default of Swiber bond in 2017 and the Hyflux’s postponed coupon payment of its perpetual securities in 2018 revealed the dark side of investing in bonds (or bond-like instruments). Indeed, the risk of losing 100% of your capital is very real because of the default risk.

Swiber bond’s high coupon rate of 7.75% and Hyflux coupon rate of 6% should have been a warning sign that these are junk bonds that come with high default risks. Many investors and financial bloggers had been seduced by the high yields of such bonds and were caught with their pants down when both Swiber and Hyflux defaulted their coupon payments.

Although investing in corporate bonds like Frasers Property Bond and CapitaMall Bond is quite boring, it is not a straight-forward process as well. There is a need to do your homework and consider the risks. Broadly speaking, there is a need to monitor the interest rate environment and the financial health of the issuer/guarantor.

Capital preservation

For bonds, the first and foremost principle is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: November 14, 2018 — 2:09 pm

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