What were you doing this time of the year, last year? Screaming at the kids at Tokyo Disneyland? Relaxing at the beach in Bali? Or… snapping up 2018’s Astrea IV bonds like there was no tomorrow? (Which there was.)
If you answered the latter, you probably don’t need to read this article because you very likely have already bought yourself some Astrea V Bonds when they went on sale at 9am today.
It’s the highly anticipated follow-up to the breakthrough Astrea IV, and features much of the original’s merits.
For those of you reading this with a blank look on your face, here’s a primer to get you up to speed on the new Astrea V Bonds from Temasek Holdings’ subsidiary, Azalea Asset Management.
Wait, what’s the backstory with Astrea IV bonds?
Don’t know what the fuss is about? A little flashback is in order:
In June 2018, a little thing called Astrea IV bonds became available to regular Singaporean investors like you and me. This was a pretty big deal back then, because before Astrea IV, there were very few ways to invest in bonds other than buying Singapore Savings Bonds.
For the uninitiated, a “bond” is sort of a loan, but in reverse.
When you borrow money from a bank, you pay them back with interest, right? When you purchase a bond, you become the moneylender. You lend money to a company or government, and (if all goes well) they return your money in full, with interest. In the case of Astrea IV, the promised interest was an eye-popping 4.35%.
Oh, but that’s not all. Actually, the main reason why everyone steam over the Astrea IV bonds was that the parent company of the bond issuer is none other than Temasek Holdings, which makes investors feel extremely confident that they’ll get their money back.
Because Temasek Holdings leh. They cannot die one.
… Even though Temasek Holdings doesn’t actually have anything to do with how the bond’s funds are managed – that’s totally taken care of by their subsidiary, Azalea Asset Management, who is the actual issuer of the bond.
So are Astrea V bonds exactly the same as Astrea IV bonds?
Nope, there are a couple of differences, highlighted in bold below:
|Factor||Astrea IV Bonds||Astrea V Bonds|
|Expected annual return||4.35% (first 5 years, subsequently 1% more)||3.85% (first 5 years, subsequently 1% more)|
|Are returns guaranteed?||No||No|
|Tenure||5 / 10 years||5 / 10 years|
|Diversification||36 funds, 596 companies globally||38 funds, 862 companies globally|
|Credit rating||Asf||Expected to be Asf|
|Tradeable on SGX?||Yes||Yes|
As you can see, Astrea V Bonds offer a significantly lower annual return of 3.85% p.a., which really isn’t as sexy as Astrea IV’s 4.35%.
Both bonds are similarly structured in that the bond matures after 5 years, after which you can opt to redeem the bond and get your capital back. At this point, if the bond has performed well enough, you might even get a “performance bonus” of 0.5% of your investment.
But… If the funds are doing poorly and there are (gasp) cashflow problems, you might not be able to get your principal back at this point.
If this is the case, after year 5, the interest will go up by 1% (in the case of the Astrea V bonds, to 4.85% p.a.) all the way until the final maturity date, 10 years from now.
The other difference between Astrea IV and Astrea V is where your money goes. Both feature ultra-diverse and hence low-risk portfolios, and it seems that Astrea V has taken one step further by diversifying the funds among 862 companies, up from 596, around the world. I’ll discuss this a little more in the next section.
So are Astrea V bonds worth investing in or not?
In my totally amateur, don’t-take-my-word-for-it, ultran00b opinion, the Astrea V bonds are definitely worth considering, for 3 main reasons:
- 3.85% p.a. returns (although not guaranteed)
- Relatively low risk (due to credit rating & diversification)
- Low barriers to entry & exit
Let’s talk about the promised 3.85% p.a. returns. I’m pretty sure some people would kaopeh that 3.85% is a flaccid disappointment compared to the 4.35% offered in the previous round, but aiyah, cannot complain lah.
Suuure, you might be able to make more from your cryptocurrency investments or Alibaba shares, but that’s a whole different ball game. The high returns go hand-in-hand with the high risk nature of such investments. You can’t expect that kind of outcome from a relatively low risk investment like the Astrea bonds.
In fact, I’d say that the returns for the Astrea V bonds are comparable with holding an STI ETF for 5 years (and the STI ETF is about as safe as it gets for a stock market-based investment).
Which brings me to my next point about risk…
To me, the more appealing thing about Astrea V is that it’s structured in a way that’s relatively low risk (in my opinion) compared to other investments.
But first, I cannot emphasize enough that the risks are real when it comes to bonds. Think about it: You’re lending your hard-earned money to companies you have never heard of, and have absolutely no way to know what on earth they’re doing with it.
You might have heard of the horrifying Hyflux debacle, where the water treatment company defaulted on its bond, and many investors who put their money – including their CPF savings!!! – into Hyflux bonds are projected to get back only about 1/10 (OMG) of what they originally invested.
I wouldn’t blame anyone for opting to put their money in a Milo tin under the bed from now on.
But Hyflux is quite a different animal from the Astrea bonds. Hyflux is just one company in a particular industry, whereas Astrea V’s portfolio is extremely diversified.
I can understand the downfall of Hyflux, but what are the chances of all 862 companies in Astrea V crashing at the same time? Furthermore, the companies are all in different sectors and countries, which is reassuring (and also eliminates the need to research the companies individually).
That said, you should understand that interest payouts and the principal investment are both not guaranteed.
There’s a chance you can lose it all, so please, please don’t put your life savings into this – I very much doubt anyone from Temasek Holdings, Azalea Management, or Ho Ching herself is going to pay back retail investors out of her pocket should Astrea V run into a Hyflux-type situation.
How do you buy or sell Astrea V bonds?
One of the reasons why I think Astrea V bonds are worth looking at, even in these dark, post-Hyflux times, is that the barriers to entry and exit are pretty low.
For a start, the minimum investment is $2,000 (multiples of $1,000). That’s higher than the $500 entry point for Singapore Savings Bond, but still a comfortable amount; way lower than the typical fixed deposit requirement.
To invest in Astrea V, you need to have a CDP account that is linked to a bank account with DBS/POSB, OCBC, or UOB.
Assuming you have both, from now till 12pm on 18 June 2019, you can purchase Astrea V bonds through internet banking or your nearest ATM. You need to pay a $2 transaction fee. Note that Astrea V bonds are cash only, hor – it’s not eligible for the CPF or SRS investment schemes.
The only thing to note is that it might actually be oversubscribed, just like the Astrea IV bonds were. There’s a chance that your application will be rejected or you get allotted a smaller amount than you originally wanted. If this happens, the excess will be refunded (except for the $2 fee).
Before you run to the nearest ATM, I highly recommend that you attend a FREE Astrea V seminar at SGX Academy this weekend to learn more about how it works.
Should you need to liquidate your investment at any point, it’s possible to do so by selling your bond on SGX (from 21 June), like you would any other stocks on the market. It’s hard to predict the financial outcome of doing so, because you can make a capital gain as well as lose it all – so I wouldn’t do this for fun.