Markets have been volatile, with uncertainty over interest rates and Middle East tensions adding to investor caution.
For investors looking to reduce portfolio swings while still earning income, bond funds can play a useful role.
Why bonds when markets get rocky?
When stock markets are under pressure, investors often turn to bonds because they offer potentially more predictable income and tend to be less volatile than equities.
Bond funds provide this avenue for possible income generation by giving investors access to a diversified basket of bonds, without having to pick individual issuers.
Active bond fund managers can adjust their portfolio holdings as conditions change, such as by managing interest rate exposure or credit risk.
In simple terms, bond funds can potentially help steady one’s portfolio when markets get choppy.
The key is to understand what type of bond fund you are buying, how much interest rate risk it carries, and whether the underlying bonds are of good quality. There are also several other risks that bond funds may be exposed to.
Matching the appropriate bond fund to your risk appetite
Not all bond funds carry the same level of risk.
Fullerton offers a range of bond funds for different investor needs, from more conservative options to higher-income strategies.
Source: Fullerton Fund Management Company Ltd
The Fullerton Short Term Interest Rate Fund is one of Fullerton’s more conservative options, where it invests in short-dated, high-quality bonds (and where foreign currency-denominated credits are fully hedged to SGD, except for a 5% frictional currency limit). As of 30 April 2026, it has an average duration of 2.0 years, making it less sensitive to interest rate movements. Its 1-year return on a bid-to-bid basis for the SGD A share class, was 3.43%.
Fullerton Short Term Interest Rate – Class A (SGD)
Returns of more than 1 year are annualised. Returns are calculated on a single pricing basis in SGD with net dividends and distributions (if any) reinvested. Offer-to-bid returns include an assumed preliminary charge of 3% which may or may not be charged to investors. Benchmark: 3M SORA + 0.60% p.a. With effect from 1 August 2023, the benchmark is 3M SORA + 0.60% p.a. From inception till 31 July 2023, the benchmark was 3M SIBID. Source: Fullerton Fund Management Company Ltd and Bloomberg, data as of 30 April 2026.
Separately, the Fullerton SGD Income Fund focuses on Singapore dollar-denominated investment-grade bonds but also has the flexibility to invest in high yield bonds capped by a 30% limit and has share class options (like the A share class for example) that pays quarterly distributions1. This may suit investors looking for more frequent income payouts. As of 30 April 2026, its 1-year return on a bid-to-bid basis for the SGD A share class, was 5.99%.
Fullerton SGD Income Fund – Class A
Returns of more than 1 year are annualised. Returns are calculated on a single pricing basis in SGD with net dividends and distributions (if any) reinvested. Offer-to-bid returns include an assumed preliminary charge of 3% which may or may not be charged to investors. Source: Fullerton Fund Management Company Ltd, data as of 30 April 2026.
The Fullerton USD Income Fund (SGD Hedged) on the other hand, provides investors exposure primarily to USD bonds, that are of Investment Grade (IG) quality with a 30% cap on non-IG holdings, while hedging currency risk back to Singapore dollars. The A share class (SGD Hedged) version has provided a 1-year return of 6.92% on a bid-to-bid basis.
Fullerton USD Income Fund – Class A (SGD Hedged)
Returns of more than 1 year are annualised. Returns are calculated on a single pricing basis in SGD with net dividends and distributions (if any) reinvested. Offer-to-bid returns include an assumed preliminary charge of 3% which may or may not be charged to investors. Source: Fullerton Fund Management Company Ltd, data as of 30 April 2026.
Note: The Managers may use Financial Derivative Instruments (FDIs) for hedging and efficient portfolio management purposes
For investors who want Asia-local currency exposure, there is Fullerton Lux Funds – Asian Currency Bonds, which invests in Asian local currency denominated fixed income across a range of issuers (mostly governments, quasi-governments, government agencies or supranationals, with a smaller exposure to credits) denominated in a host of Asian currencies. Its investable universe comprises fixed income or debt securities, including convertibles, denominated primarily in Asian currencies and primarily issued by companies, governments, quasi-governments, government agencies or supranationals in the Asian region.
Fullerton Lux Funds – Asian Currency Bonds – Class A (SGD) Dist
Source: Fullerton Fund Management Company Ltd, data as of 30 April 2026.
For investors comfortable with greater volatility and a fund that can invests primarily in investment grade, unrated or rated non-investment grade fixed income or debt securities denominated mostly in USD and Asian currencies, there is Fullerton Lux Funds – Flexible Credit Income. It has the flexibility to invests across credits – Investment Grade or High Yield with a higher limit on the latter2, primarily in Asia but it also invests in the broader Emerging Market space. The fund can also invests in Contingent Convertibles3. Allocation to different blocs allows for access to multiple income stream opportunities for potential income generation across different market cycles.
Fullerton Lux Funds – Flexible Credit Income
Source: Fullerton Fund Management Company Ltd
Aligning bond investments with your risk appetite
Fullerton offers a range of fixed income solutions for different risk profiles. The overarching idea is to align the fund to your comfort level and risk preferences. More conservative investors may lean toward shorter-duration or investment-grade bond funds, while those seeking higher income could consider flexible credit strategies, provided they are comfortable with the additional risks.
What does active management mean for investors?
Active management means the fund manager can adjust the underlying portfolio’s holdings accordingly as market conditions evolve.
Such an approach can help investors to be appropriately positioned depending on where we are in the market cycle, as opposed to a passive bond fund that simply tracks a bond index.
The key takeaway is that bond funds will not remove volatility completely. But a well-managed bond fund can potentially help cushion your portfolio during market selloffs, while still potentially generating income along the way. Selecting the “right” bond fund that is in-line with your objectives and risk tolerance is paramount.
What to keep in mind
Bond funds are not capital guaranteed. The value of your investment can fluctuate depending on market conditions.
When interest rates rise, bond prices typically come under pressure. Credit risk, amongst other risks, is also something to monitor, even for funds that hold mostly investment-grade bonds.
That said, shorter-duration funds, such as the Fullerton Short Term Interest Rate Fund, are generally less sensitive to interest rate swings and may potentially hold up better when markets are volatile4.
Explore Fullerton’s wider range of fixed income solutions at: https://www.fullertonfund.com/investment-capabilities/fixed-income/
1 Distributions (if any) may be declared at the absolute discretion of Fullerton and are not guaranteed. Distribution may be declared out of income and/or capital of the Fund, in accordance with the prospectus. Where distributions (if any) are declared in accordance with the prospectus, this may result in an immediate reduction of the net asset value per unit in the Fund.
2 Internal guideline: subject to change without prior notice.
3 Please refer to the Fund’s prospectus for the key terms and risks.
4 Note there are still other risks for consideration. Please Refer to the fund’s prospectus for the full list of risk disclosures for the Fullerton Short Term Interest Rate Fund.
Important Information:
This publication is for information only and your specific investment objectives, financial situation and needs are not considered here. The value of units in the Fund and any accruing income from the units may fall or rise. Any past performance, prediction or forecast is not indicative of future or likely performance. Any past payout yields and payments are not indicative of future payout yields and payments. Distributions (if any) may be declared at the absolute discretion of Fullerton Fund Management Company Ltd (UEN: 200312672W) (“Fullerton”) and are not guaranteed. Distribution may be declared out of income and/or capital of the Fund, in accordance with the prospectus. Where distributions (if any) are declared in accordance with the prospectus, this may result in an immediate reduction of the net asset value per unit in the Fund. Applications must be made on the application form accompanying the prospectus, which can be obtained from Fullerton or its approved distributors. You should read the prospectus and seek advice from a financial adviser before investing. If you choose not to seek advice, you should consider whether the Fund is suitable for you. The Fund may use or invest in financial derivative instruments. Please refer to the prospectus of the Fund for more information.
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