International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

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karan10489
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International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Sat May 18, 2019 10:43 pm

Hi All

I'm a 30 year old investor based in Singapore trying to figure out an asset allocation composed of Irish domiciled ETFs (since SG has no tax-treaty with the US) and am very confused about picking a bond component.
I'm originally from India and have no idea where I'm going to settle long term, so have no particular currency preference, just trying to minimize risk and costs, although my income is in SGD.
Further i'm looking at accumulating ETFs since i have no income requirement and my outlook is at least 30 years.

After traversing this amazing website for hours, I'm still pretty confused about the following options:

1. IUAA - US Dollar denominated investment grade government, government-related, corporate and securitised bonds (UCITS for AGG by the looks of it)
TER: 0.25%
https://www.ishares.com/uk/individual/e ... s-etf-fund

2. AGGU - Global Investment Grade Bonds
TER: 0.10%
https://www.ishares.com/uk/individual/e ... ts/291772/

3. IGLA - Local currency bonds issued by governments of developed countries
TER: 0.20%
https://www.ishares.com/uk/individual/e ... s-etf-fund

I understand the rationale is to have some stability in the portfolio and not necessarily look for yield so AGGU seems the most attractive but my confusion lies in 2 parts:

1. The Global bonds UCITS
a. Pros: Cheaper.
Diversified globally so not exposed to risk of default to a single country.
I would assume that investment grade (AGGU) > government bonds (IGLA) in terms of yield as I would still like to beat inflation long term

b. Cons: Contain japanese/german bonds which are effectively negative yielding as well as say Italian bonds which aren't excactly the most "stable" in terms of outlook.
Also, these introduce currency risk

2. IUAA:

a. Pros: US Debt, considered safe
Investment Grade so higher yield than just Simple Treasuries
Minimize Currency Risk

b. Cons: Most expensive of the lot.
Historical levels of US debt, not sure about sustainability, although i suppose if the US ever defaulted, we'd all have bigger problems

Not sure if i've understood the distinctions between the above correctly but i'd be grateful for feedback.

Any thoughts or ideas would be very helpful in figuring this out further.

Achkelone
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Achkelone » Sun May 19, 2019 3:35 am

I don't know about the fine details regarding bond ETFs, but I think I'd come to the same conclusions as yours.

The two you focused on, have their pros and cons, but they seem equivalent in terms of safety and their total returns aren't much different either.
Thus I'd pick AGGU based on cost, as we know it can make a not-so-little dent in returns over the long run.

Perhaps you could even mix, and put half of your bond savings in AGGU and the other half in IUAA. It wouldn't be the cheapest option, but not the most expensive either, and currency risks would be diluted.

pin
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Joined: Sat Aug 26, 2017 5:32 am

Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by pin » Sun May 19, 2019 9:14 pm

I ended up down the AGGU route. Keeps is simpler.

Curny
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Curny » Mon May 20, 2019 12:37 pm

Hi -

Have a look at iShares IAAA. Available on the LSE.

https://www.ishares.com/uk/individual/e ... -ucits-etf

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Thu May 23, 2019 6:12 am

Achkelone wrote:
Sun May 19, 2019 3:35 am
I don't know about the fine details regarding bond ETFs, but I think I'd come to the same conclusions as yours.

The two you focused on, have their pros and cons, but they seem equivalent in terms of safety and their total returns aren't much different either.
Thus I'd pick AGGU based on cost, as we know it can make a not-so-little dent in returns over the long run.

Perhaps you could even mix, and put half of your bond savings in AGGU and the other half in IUAA. It wouldn't be the cheapest option, but not the most expensive either, and currency risks would be diluted.
Thanks for the feedback, i'm actually leaning towards this to be honest and just avoid the headache of wondering, but it surprises me that the returns are similar given the strange profile of the two.

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Thu May 23, 2019 6:13 am

pin wrote:
Sun May 19, 2019 9:14 pm
I ended up down the AGGU route. Keeps is simpler.
Thanks for the reply! Curious to know if the returns/stability been in line with your expectations when you bought it?

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Thu May 23, 2019 6:17 am

Curny wrote:
Mon May 20, 2019 12:37 pm
Hi -

Have a look at iShares IAAA. Available on the LSE.

https://www.ishares.com/uk/individual/e ... -ucits-etf
Thanks! I actually looked at this but it seems to be only developed countries ex-US for a higher TER at 0.2% so seemed an "inferior" option to AGGU in terms of diversification, would you have a different understanding?

Curny
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Joined: Fri Mar 17, 2017 9:09 am

Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Curny » Sun May 26, 2019 8:58 am

karan10489 wrote:
Thu May 23, 2019 6:17 am
Curny wrote:
Mon May 20, 2019 12:37 pm
Hi -

Have a look at iShares IAAA. Available on the LSE.

https://www.ishares.com/uk/individual/e ... -ucits-etf
Thanks! I actually looked at this but it seems to be only developed countries ex-US for a higher TER at 0.2% so seemed an "inferior" option to AGGU in terms of diversification, would you have a different understanding?
AGGU did not exist when I started investing 5 years back, IAAA was the only real option for non-US investors looking to add a Global bond diversification to their portfolios. It has Treasury Notes included (US Bonds) with 20% allocated to USD.

I see this aspect of my portfolio as stabilisation in a downturn vs looking to gain significantly from a price increase.

Anyone have an opinion on AGGU v IAAA?

pin
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Joined: Sat Aug 26, 2017 5:32 am

Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by pin » Sun Jun 02, 2019 8:55 am

karan10489 wrote:
Thu May 23, 2019 6:13 am
pin wrote:
Sun May 19, 2019 9:14 pm
I ended up down the AGGU route. Keeps is simpler.
Thanks for the reply! Curious to know if the returns/stability been in line with your expectations when you bought it?
Well it seems to do the job in providing a globally diversified ETF of a mix of corporate and government bonds. Don't know what else to say really.

ICH
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by ICH » Sun Jun 02, 2019 12:18 pm

Curny wrote:
Sun May 26, 2019 8:58 am
Anyone have an opinion on AGGU v IAAA?
IAAA is Global AAA-AA Govt Bonds. It is USD unhedged, so you will feel the full effect of currency fluctuations. But in panic times, it is likely to increase in value as investors opt for safety.
AGGU is Global Aggregate Bond. It is hedged to the USD so no issue with currency fluctuations (assuming you are a USD investor). But in case of trouble it will probably go down together with your stocks.

Depends what you want.

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Sun Jun 02, 2019 8:36 pm

[/quote]
Anyone have an opinion on AGGU v IAAA?
[/quote]

Yea this is what's tripping me up at the moment as well, any views are welcome

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Tue Jun 04, 2019 9:16 am

karan10489 wrote:
Sun Jun 02, 2019 8:36 pm
Anyone have an opinion on AGGU v IAAA?
Yea this is what's tripping me up at the moment as well, any views are welcome
Looking at all these choices, it seems the key differences and thus questions to ask are...

Do you want slightly lower credit but still investment grade bonds in your portfolio or just high grade for safety?
1) Investment grade - slightly higher yield, greater diversification, includes corporates
2) Investment grade govt - like 1) but excludes corporates
3) High grade - greater safety, better equity hedge, lower cost

Do you want to be hedged back to USD or not?
A) Yes - You care about your USD networth
B) No - You're an international with no particular currency home

Do you want just US exposure or global?
Y) US only - I believe in the US system or am primarily US owned
Z) Global - I believe in greater diversity

I suspect if one takes a cross product of all those options, there is an iShares product for you

IUAA: 1-Y
AGGU: 1AZ
AGGG: 1BZ
IAAA: 3?Z . (I can't tell if this is USD hedged or not)
IGLA: 2?Z
And if you need another dimension of iShares availability, you also have distributing vs accumulating.

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Tue Jun 04, 2019 9:54 am

Let me try again since I'm trying to figure out these choices too. Basically you first have to choose the base portfolio. There are 4 choices at play here from diversified to narrower. What they all have in common are they are relatively diversified and all at least investment grade

1) Global Aggregate Bond (AGGG)
Some Barclays global index that includes govts and corporates from AAA to BBB
2) Global Govt Bond (IGLO)
Like 1) but without the corporates - Governments only
3) Global AAA-AA (IAAA)
Like 2) but only high grade bonds
4) US Aggregate Bond (IUAG)
USD denominated bonds only so a clear tilt towards trusting the US market

The above ETFs are all distributing and unhedged but based in USD

After that, you have to decide if you want
a) Distribution or Accumulation
b) Hedged to some currency or Unhedged

When you've decided all that, allows these variations
AGGG variants:
AGGU - Accumulating, USD Hedged

IAAA variants:
GAAA - Accumulating, unhedged

IGLO variants:
IGLA - Accumulating, unhedged
IGLH - Distributing, GBP hedged

IUAG variants:
IUAA - Accumulating, unhedged
IUGA - Distributing, GBP hedged

TL;DR... given the Vanguard recommendation to be global diversified but hedged back to your local currency, which is usually safely USD... then AGGU is the most obvious choice to me.

Disclaimer: I currently own IUAA for my USD bond portfolio but will probably switch to buying AGGU or AGGG instead
Last edited by glorat on Sun Jun 09, 2019 8:11 am, edited 1 time in total.

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Wed Jun 05, 2019 9:55 am

One more factor to consider is trading volume of the choices, which relates both to liquidity and popularity

IGLA: <5 trades a day
AGGU: - ~10 trades a day
AGGG: ~15 trades a day but often more
IUAA: ~ 30 trades a day
AGBP: ~ 5 trades a day

And to put into a context, an SG based investor lazy portfolio is likely based on VWRD
VWRD: 25-50 trades a day typically

(in all cases above, there are often "busy" days where there is much more activity)

Curny
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Curny » Thu Jun 06, 2019 10:15 am

glorat wrote:
Wed Jun 05, 2019 9:55 am
One more factor to consider is trading volume of the choices, which relates both to liquidity and popularity

IGLA: <5 trades a day
AGGU: - ~10 trades a day
AGGG: ~15 trades a day but often more
IUAA: ~ 30 trades a day
AGBP: ~ 5 trades a day

And to put into a context, an SG based investor lazy portfolio is likely based on VWRD
VWRD: 25-50 trades a day typically

(in all cases above, there are often "busy" days where there is much more activity)
Very interesting. Where are you finding the trades per day?

Curny
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Curny » Sat Jun 08, 2019 2:39 pm

Got it - Thanks.

https://www.londonstockexchange.com/exc ... upToRow=20

Happy with IAAA.LN based on the above responses (World diversified, not ccy hedged) since do not know where I will retire (UK expat in Asia). Same with VWRD.LN. If anyone spots a major flaw in holding either then please let me know

Thanks all!

andrew99999
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by andrew99999 » Sat Jun 08, 2019 10:38 pm

Curny wrote:
Sat Jun 08, 2019 2:39 pm
Happy with IAAA.LN based on the above responses (World diversified, not ccy hedged) since do not know where I will retire (UK expat in Asia). Same with VWRD.LN. If anyone spots a major flaw in holding either then please let me know
Hmm 20% USD seems low and 50% EUR seems high.
Although being from the UK maybe that's ok.
I wonder if your Asian country is closer correlated to the USD than Euro though.

Just thinking out loud because I'm also an expat in Asia and over the past few years my home currency is down vs USD and USD is down vs currency I am in now, so I am copping it on both sides from my country of origin, and wondering if holding more USD as a kind of proxy for the global currency makes more sense.

Curny
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by Curny » Sat Jun 08, 2019 11:30 pm

andrew99999 wrote:
Sat Jun 08, 2019 10:38 pm
Curny wrote:
Sat Jun 08, 2019 2:39 pm
Happy with IAAA.LN based on the above responses (World diversified, not ccy hedged) since do not know where I will retire (UK expat in Asia). Same with VWRD.LN. If anyone spots a major flaw in holding either then please let me know
Hmm 20% USD seems low and 50% EUR seems high.
Although being from the UK maybe that's ok.
I wonder if your Asian country is closer correlated to the USD than Euro though.

Just thinking out loud because I'm also an expat in Asia and over the past few years my home currency is down vs USD and USD is down vs currency I am in now, so I am copping it on both sides from my country of origin, and wondering if holding more USD as a kind of proxy for the global currency makes more sense.
Thanks for the response, good points. Always happy for the input. Paid HKD which is pegged to USD. Opted to have global ccy as USD instead of home ccy of GBP.

Worst case I could start buying the GBP versions of the ETFs if I was ever to head back to the UK or should I try to balance USD and GBP? What’s your thoughts?

andrew99999
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by andrew99999 » Sun Jun 09, 2019 2:29 am

Curny wrote:
Sat Jun 08, 2019 11:30 pm
What’s your thoughts?
Well, as an Aussie living in Thailand, with 50/50 chance of returning, I'm thinking half AUD bonds and half THB, but I am concerned about the stability of THB since pretty much the entire country from top to bottum is steeped in corruption, so who knows what will happen and I am thinking in place of that half, a global currency, probably USD might make more sense, so I am thinking either a global fund like AGGG which is around 40-50% USD or AGGU which is the USD hedged version.

Although now that I type it out, your one with half in EU might make sense for a UK citizen as a kind of combination of the two that that I am thinking of.

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Sun Jun 09, 2019 8:16 am

Curny wrote:
Sat Jun 08, 2019 11:30 pm
Thanks for the response, good points. Always happy for the input. Paid HKD which is pegged to USD. Opted to have global ccy as USD instead of home ccy of GBP.

Worst case I could start buying the GBP versions of the ETFs if I was ever to head back to the UK or should I try to balance USD and GBP? What’s your thoughts?
I'm exactly in the same boat. I've considered two strategies
1) Income based
I take my old GBP earnings and AA that across usual equities plus global bonds hedged to GBP
I take my current HKD/CNY earnings, convert that to USD and AA that across global equities and global bonds hedged to USD or unhedged (more on this choice another time)

Pros: No CCY drag between GBP and other
Cons: Overweight on the GBP strategy now but will be underweight if I earn enough outside the UK

2) Likelyhood of settling
Let's say I'm 50/50 returning to GBP vs "somewhere else". I would then have 50% hedged to GBP and 50% either to USD or unhedged
Given the principle of investing and hedging to where one settles, this seems the right approach but is a little more complex to rebalance to.

I'm going with 1) for now so I don't worry about FXing things nor rebalancing and my cost basis accounting is much simpler for tracking my investments.

I think the above choices work if your two countries are well developed. If one country is an emerging market. E.g.
I'm thinking half AUD bonds and half THB, but I am concerned about the stability of THB
I'd replace the emerging currency (THB) with either USD or a global unhedged strategy

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Mon Jun 10, 2019 6:55 am

glorat wrote:
Wed Jun 05, 2019 9:55 am
One more factor to consider is trading volume of the choices, which relates both to liquidity and popularity

IGLA: <5 trades a day
AGGU: - ~10 trades a day
AGGG: ~15 trades a day but often more
IUAA: ~ 30 trades a day
AGBP: ~ 5 trades a day
So how much does liquidity matter? I've been watching the bid/ask sizes and one can see where the market maker is offering its prices. There's a 30bps spread roughly in most of the above, with AGGG having a slightly tighter spread. Moreover, watching the intraday, AGGG is clearly having both buyers and sellers (as opposed to, for example, where VWRL/VWRD is mostly buyers). On the low volume shares, you have to pretty much take the market maker value and eat the 30bps spread.

After observing this for a few days and my USD funding arriving today, I finally placed my purchase order of AGGG just 2bps above the bid, eventually got hit on a seller and saved myself 18bps on the spread.

In a world where annual expense ratio is 0.1% a year, saving 0.18% on the initial purchase is a pleasing small win.

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Wed Jun 12, 2019 9:35 am

glorat wrote:
Tue Jun 04, 2019 9:16 am
karan10489 wrote:
Sun Jun 02, 2019 8:36 pm
Anyone have an opinion on AGGU v IAAA?
Yea this is what's tripping me up at the moment as well, any views are welcome
Looking at all these choices, it seems the key differences and thus questions to ask are...

Do you want slightly lower credit but still investment grade bonds in your portfolio or just high grade for safety?
1) Investment grade - slightly higher yield, greater diversification, includes corporates
2) Investment grade govt - like 1) but excludes corporates
3) High grade - greater safety, better equity hedge, lower cost

Do you want to be hedged back to USD or not?
A) Yes - You care about your USD networth
B) No - You're an international with no particular currency home

Do you want just US exposure or global?
Y) US only - I believe in the US system or am primarily US owned
Z) Global - I believe in greater diversity

I suspect if one takes a cross product of all those options, there is an iShares product for you

IUAA: 1-Y
AGGU: 1AZ
AGGG: 1BZ
IAAA: 3?Z . (I can't tell if this is USD hedged or not)
IGLA: 2?Z
And if you need another dimension of iShares availability, you also have distributing vs accumulating.
Thanks for putting this down so cleanly :) Broadly this is also how i approached it and i came up with 1BZ as per the above except i favour accumulating so i'm leaning towards AGGU which seems to be emerging as the consensus choice

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Wed Jun 12, 2019 9:37 am

glorat wrote:
Wed Jun 05, 2019 9:55 am
One more factor to consider is trading volume of the choices, which relates both to liquidity and popularity

IGLA: <5 trades a day
AGGU: - ~10 trades a day
AGGG: ~15 trades a day but often more
IUAA: ~ 30 trades a day
AGBP: ~ 5 trades a day

And to put into a context, an SG based investor lazy portfolio is likely based on VWRD
VWRD: 25-50 trades a day typically

(in all cases above, there are often "busy" days where there is much more activity)
Would trading volume matter for a long term buy and hold? I anticipate higher bid-ask spreads of course. Also, i actually favor IWDA + EIMI as explored in depth elsewhere on these forums because, again, accumulating :)

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Wed Jun 12, 2019 9:44 am

Also, been reading through the interesting commentary on currencies. I guess my "home" currency of INR is the runt of the litter here so i'm better off overall in USD/SGD over the longer term (INR has depreciated 50% in the last 10 years and SGD trades in a narrow band to USD). If i ever do decide to go back, I doubt i will lose much. Not sure about the THB's performance but i lean towards "stronger" currencies in the medium term so I would favor an AUD/EUR mix i suppose, all bets are off on what happens to the GBP :D (sorry!)

glorat
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by glorat » Thu Jun 13, 2019 5:13 am

karan10489 wrote:
Wed Jun 12, 2019 9:37 am
Would trading volume matter for a long term buy and hold? I anticipate higher bid-ask spreads of course. Also, i actually favor IWDA + EIMI as explored in depth elsewhere on these forums because, again, accumulating :)
Not really... everything is relative though. To give an idea of the costs involved that I've figured out
AGGG expense - 0.10% per year
Broker commission - 0.05% per transaction
Mid to Bid spread of market maker - 0.08% per buy (and the same for sell)

Frankly, all of these are small numbers but one way to look at it in the buy transaction I did above you could saved I saved over 1 year's of fund expenses. Of course we could be holding for 5 or 50 years in a world where you hope the total return is +100% or more so the one-off costs are nothing.

I think it is more of a moral win that I saved enough money to buy me lunch

Topic Author
karan10489
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Re: International Bond UCITS for an Sg-based Investor - IUAA vs AGGU vs IGLA

Post by karan10489 » Thu Jun 13, 2019 5:59 am

glorat wrote:
Thu Jun 13, 2019 5:13 am
karan10489 wrote:
Wed Jun 12, 2019 9:37 am

I think it is more of a moral win that I saved enough money to buy me lunch
Hahah, somehow I relate to this more strongly than I thought :D Thanks a lot of the inputs!

Seems after collating the general feedback on this thread, AGGU is the way to go

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