DBS has revealed that the DBS Global Income Note has raised over S$1 billion (US$0.73 billion) in three months following its launch in January 2019.
The Singapore-based bank’s first “One Bank” bond portfolio product – referred to as such as it is fully built, developed and managed in-house – hit the target tapping into a rich vein of pent-up demand from its wealthier clients, as the hunt for yield continues to dominate in a lower-for-longer environment.
Audra Seah, head of investment advisory and capital market solutions at DBS Private Bank, told The Asset how a combination of good timing and careful calibration has seen the demand for the product proliferate.
The DBS Global Income Note is an open-ended note referencing the DBS Global Income Portfolio, a portfolio of bonds jointly selected by DBS chief investment office (CIO), DBS group research and DBS fixed income analysts. This is a globally diversified and equally weighted portfolio of at least 100 mostly investment-grade bonds across geographies and sectors. Every month, the portfolio is rebalanced, and its average duration is adjusted using interest rate derivatives to manage portfolio interest rate risk in line with the CIO’s target duration.
In addition, all underlying bonds are monitored closely by DBS group research and DBS fixed income analysts on an ongoing basis.
Having seen strong client demand for similar offerings such as its fixed maturity products, which were managed by external fund providers, Seah says the bank saw an opportunity to create its own internal solution. They had all the expertise required to do so, and the timing was right. So, in late 2018, resources were committed to structure the bank’s own DBS Global Income Note.
“We decided that we could come up with a good investment proposition for our clients, leveraging our own in-house research and the support of our CIO team,” says Seah.
“For credit research, we rely on both DBS’ internal capabilities and also that of Societe Generale’s, having formed the partnership after our acquisition of their Asian wealth business back in 2014. This allows us to put together a well-diversified portfolio of recommended credits,” Seah adds.
She emphasizes that her bank, partly because of its deep-rooted position in the region, knows what its Asian-based clients prefer and are comfortable with.
The understanding means Seah and her team, backed by the structuring capabilities of the bank’s trading unit, can act on the demand from client-facing relationship managers in a timely manner, allowing them to adequately meet their clients’ comfort level on risk parameters.
The close collaboration between product managers and client advisors also allowed the team behind the DBS Global Income Note to incorporate client feedback on preferences, which Seah insists makes the product a truly client-centric and dynamic instrument.
Seah is happy with the good response that the product has received so far and claims there is still robust interest in the DBS Global Income Note.
“Right now, there is a general expectation for central banks to ease monetary policy, from Europe, Japan, Australia, New Zealand, and of course, the US. As more investors become convinced that rates will remain low for the foreseeable future, the momentum in seeking yields is slated to remain strong,” says Seah.
“We structured the DBS Global Income Note to address income investors’ need for greater stability and certainty by providing access to a highly diversified fixed income portfolio for a relatively small investment amount. In addition, by including only actively-monitored and mostly investment-grade bonds, we relieve investors of the need to keep close tabs on their portfolio, which would be challenging and time-consuming in today’s increasingly volatile environment,” Seah adds.
While Seah and her teams are now enjoying the fruits of their own endeavour, the process to get the DBS Global Income Note in front of the bank’s wealthier clients was no overnight success.
“We have an established and stringent approval process for all new products. It took us several months to complete this exercise, which reflects the bank’s emphasis on ensuring thorough screening and due diligence is done before introducing any products to our clients,” Seah points out.
DBS is keen to align itself as an institution embracing environmental and social governance and has been advocating these causes through ongoing client education and engagement programmes, as well as by strengthening its suite of ESG offerings.
While Seah would like to adopt the ESG theme for the DBS Global Income Note, it may not be possible to do so at this stage, for practical reasons.
“The note’s objective is to provide clients with a stable income stream and serve as a cornerstone of their portfolios, irrespective of recession or boom times. As such, our key consideration when constructing the underlying portfolio of bonds is to ensure we achieve sufficient diversity, whilst keeping in mind a target yield and duration as advised by our chief investment office. There might not be existing green bonds or bonds issued by ESG companies that meet our criteria,” says Seah.
The majority of the portfolio is in Asian names, neatly falling in line with DBS’ strengths.
The whole exercise, from inception to client purchase, may have started out challenging but the positive client response has given Seah, her teams and colleagues an infusion of confidence. Other investment solutions are expected to follow in time to come, based on the favourable response by clients.