Bond funds can play very different roles in a portfolio. For some investors, they could act as a “parking avenue” for excess cash. For others, they are a potential source of income distribution, or a way to seek possibly higher yield alongside equities. The key to choosing the right bond fund is to align the fund’s risk profile with your own objectives. Three practical parameters that could help you do this are: credit rating, duration and currency.
Before looking at fund names or yields, it is useful to be clear about what you want your bond allocation to achieve. If your main priority is capital preservation and liquidity over the next one to two years, a more conservative, short‑duration portfolio of high‑quality bonds in your home currency is likely to be more appropriate. If you are focused on generating regular income over a three‑to five‑year horizon, you should be willing to assume a bit more credit and interest rate risk. Investors with longer horizons, and who are comfortable with market volatility, may be willing to take on more credit and currency risk in exchange for potentially higher income.
Once your goal is defined, you can use credit ratings, duration and currency to narrow down the most suitable bond funds from a product provider such as Fullerton Fund Management’s range of fixed income solutions, which spans conservative SGD fixed income strategies, income funds in SGD and USD, and more flexible Asian and global solutions.
A natural starting point is credit rating, which captures the issuer’s ability and willingness to repay its debt. Ratings such as AAA, AA, A and BBB ranges1 are considered investment grade, indicating lower default risk but also typically lower yields. Ratings below BBB‑, often referred to as high yield, offer higher income potential, but come with a greater risk of loss and more volatile prices. When assessing a bond fund, it is important to look at the portfolio’s average credit rating and any limits on high yield exposure. A fund invested purely in investment‑grade bonds, will tend to behave differently from one that can allocate meaningfully to high yield, even if both carry the word “income” in their names.
Within Fullerton’s flagship SGD fixed income line‑up, investors can see this spectrum clearly. A fund such as the Fullerton SGD Savers Fund focuses on money market instruments and higher‑quality credits, resulting in an average portfolio rating around AA (as of end April 2026) and a more conservative risk profile, compared to Fullerton Short Term Interest Rate Fund or Fullerton SGD Income Fund. The Fullerton Short Term Interest Rate Fund invests primarily in investment‑grade credits as well, with an average rating around BBB (as of end April 2026) but still with a focus on high‑quality issuers. At the more income‑oriented end of the SGD range, the Fullerton SGD Income Fund permits a measured allocation to high yield (up to 30% of net asset value), while keeping the overall average rating around BBB (as of end April 2026), so that investors can seek higher income within a still largely investment‑grade framework.
For investors looking beyond SGD solutions, funds such as the Fullerton USD Income Fund and Fullerton Lux Flexible Credit Income invest in Global credits and primarily in Asia, and are managed with average ratings in the BBB space (as of end April 2026). These funds aim to balance attractive income with prudence in credit selection, using diversification across sectors and regions to manage risk. The Fullerton USD Income Fund looks togenerate long term capital appreciation and/or income for investors by investing primarily in fixed income or debt securities, while Fullerton Lux Flexible Credit Income looks to generate long term capital appreciation for its investors. The practical message is straightforward: if capital preservation is your top priority, funds with higher average ratings and tight caps on high yield allocations may be appropriate; if you can accept more volatility for potentially higher income, consider strategies that introduce a measured amount of lower‑rated bonds while remaining anchored in investment grade.
A second key parameter is duration, which measures how sensitive a bond portfolio is to interest‑rate changes. Duration is expressed in years, and serves as a commonly used rule‑of‑thumb indicator to potential price moves. As a rough guide, a portfolio with a duration of two years might gain or lose about 2% in price if interest rates move 1% across the curve, whereas a fund with an eight‑year duration could move about 8% under the same conditions. Duration therefore matters for both risk management and in helping to inform expectations about short‑term rate volatility.
In practice, investors can think about duration in three broad buckets. Short‑duration funds, with duration of about zero to two years, typically experience smaller price swings and are suited to more conservative investors or those with shorter time horizons. The Fullerton SGD Savers Fund, with an average duration of roughly 1.1 years (as of end April 2026), and the Fullerton Short Term Interest Rate Fund, with an average duration around 2.0 years (as of end April 2026), are examples of a more defensive, style of investing. Intermediate‑duration funds, with duration in the three‑ to five‑year range, seeks to strike a balance between income and volatility, and often serve as core bond holdings that most investors may seek to have as foundational positions. The Fullerton SGD Income Fund, at around 4 plus year of duration (as of end April 2026), embodies this core income role for SGD‑based investors. Finally, longer‑duration strategies, which can extend beyond six or seven years, such as the Fullerton Singapore Bond Fund, offer more sensitivity to interest‑rate cycles and may be suitable for investors with longer horizons and greater tolerance for price fluctuations.
For investors diversifying into USD and global markets, duration considerations are similar. The Fullerton USD Income Fund and Fullerton Lux Flexible Credit Income are generally managed in the intermediate duration range, providing a combination of income and exposure to global rate cycles. In more unconstrained strategies such as Fullerton Lux Global Macro Fixed Income, duration is used more actively as an alpha source, with the portfolio able to vary its interest‑rate exposure across regions depending on the macro and valuation backdrop.
The third parameter is currency, which many investors underestimate. For a Singapore‑based investor, the natural base currency is SGD. If you hold a bond fund that invests in foreign‑currency bonds and does not hedge the currency risk, your returns will be driven by a combination of bond price movements and foreign exchange moves. This can be beneficial when the foreign currency strengthens against SGD, but can also detract from returns when it weakens. Deciding how much currency risk you are comfortable with is therefore an important part of fund selection.
One advantage of the SGD flagship range is that the Fullerton SGD Savers Fund, Fullerton Short Term Interest Rate Fund and Fullerton SGD Income Fund are all denominated in SGD, with non-SGD currency exposure fully hedged back to SGD2. This makes them natural building blocks for Singapore-based investors who prefer to minimise foreign exchange risk and focus on the underlying bond exposures instead. For those seeking income in USD, or who want to diversify beyond domestic markets, the Fullerton USD Income Fund offers exposure to a broad range of Global and Asian USD‑denominated credits, while Fullerton Lux Asian Currency Bonds focuses on bonds denominated in Asian local currencies, providing both bond and currency diversification in a single portfolio. Global macro strategies, such as Fullerton Lux Global Macro Fixed Income use currency positions actively as part of its investment toolkit, alongside decisions on duration and credit.
Putting these elements together helps investors map funds to their own needs. A very conservative SGD‑based investor who is focused on capital preservation and liquidity might gravitate towards a high‑quality, short‑duration solution such as the SGD Savers Fund or the Short Term Interest Rate Fund. Someone seeking a core SGD income allocation over the medium term, with the ability to accept some mark‑to‑market volatility in exchange for potentially higher coupons, may find the Fullerton SGD Income Fund a better fit, given its moderate duration and measured use of high yield. Investors who want to diversify beyond SGD, and who are either naturally USD‑based or comfortable with foreign exchange exposure, can consider USD and global strategies like the Fullerton USD Income Fund and Fullerton Lux Flexible Credit Income as complementary holdings. Those with a more flexible mandate and a longer time horizon might allocate part of their bond exposure to Asian local‑currency or unconstrained global macro strategies, such as the Fullerton Lux Global Macro Fixed Income which can move dynamically across sectors, interest rates and currencies in search of opportunities.
Ultimately, choosing the right bond fund is not about chasing the highest advertised yield but more about finding a good fit with your objectives, risk tolerance and investment horizon. Credit ratings help you understand how much default risk you are taking. Duration tells you how sensitive the portfolio is to interest rate moves. Currency determines whether foreign exchange will be a driver of your returns. By focusing on these three levers, and by selecting from a diversified platform of SGD, USD, Asian and global bond strategies, investors can build a bond allocation that plays its intended role: whether that is preserving capital, generating steady income, or adding diversified sources of return to a broader portfolio. It is important to keep in mind however that the value of investment in bond funds can fluctuate depending on market conditions. Please refer to the respective Fund’s prospectus for the full list of risk disclosures.
Publication date: June 2026.
1 These are credit rating definitions, as defined and developed by S&P Global Ratings.
2 Except for a 5% frictional currency limit for all 3 funds mentioned here.
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