fiix bond index - bpa malaysia road show

8/14/2019 FiiX Bond Index - BPA Malaysia Road Show

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The BPAM Bond Index -FiiXTM

Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.

Financial Engineering and Research



2/25

AGENDA

The BPAM Bond Index - FiiXTM

Introduction

Index Objectives

Methodology Overview

The purpose of todays presentation is to introduce the BPAM Bond Index FiiXTM

from a bondmarket players point of view


Benefits

Index Facts

Delivery Channels

Appendix

Construction Rules

Formulas


3/25

Introduction

Introducing BPAM Ringgit Bond Index - FiiXTM

The BPAM Ringgit Bond Index (FiiXTM) has been created inresponse to the existing pricing customers and marketparticipants demand for a broad and representative index.

The Index is a by-product of BPAMs bond pricing and info

business.Daily marked-to-market (MTM) price for 1900+ ringgit bondsComprehensive database for ringgit bonds via website and

BondStream

- -


, .

hallmark of a rules-based index is transparency and broadlyspeaking, predictability.

The index is subdivided into as many as 300+ Sub-Indicesbased on a variety of sector, credit and maturityclassifications.

Index and Sub-Index returns (total, price and coupon) arecalculated and rebalanced daily.


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Index Objectives

BPAM Ringgit Bond Index is designed to provide relatively broad, stable and relevantmarket benchmarks. To achieve this goal, we adhere to the following objectives:

AccurateReflect the performance of new investments and existing holdings under a realistic representation of market conditions

Broad

Represent as many asset classes as possible that are realistically available to market participants under normal marketconditions

Contains accessible characteristics and informationPrice, coupon rate, duration, etc. are all available and accessible for investors. Information should also be historical, for

example, price/yield history


InvestableBonds are investable and do not contain barriers of entry

Replicable The total returns reported for an index should be replicable by market participants

StableComposition changes of the index should occur infrequently unless it breaches the pre-specified ground rules and

should be easily understood and highly predictable

TransparentA clear set of rules should govern inclusion of bonds or markets in an index, and investors should be able to forecast

and agree on changes in composition. Information and Methodology paper is readily available


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The purpose of the Index is to measure the average performance that holders of the relevanttype of bonds experience over time. This is achieved by creating a representative portfolio ofbonds, and measuring their performance

BondIndex

Sub-Indices represent

Bond Index comprise of

a series of sub-indices

Aggregate

Govt /Pseudo

All Corp


Bond Sub-

Indices

Bond Constituents For

Individual Indices

characteristics of segments

that are within the overallindex characteristics

Bonds are grouped asconstituents for indices

Bonds are grouped to

represent a targetedcharacteristic of the indices

MGS/GII Quasi

Cagamas Khazanah

CorpFinance

AAA

Corp-Guar

Bonds across segments and classes

segregated into sub-indices.

Selection via pre-defined rules

AA A


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The purpose of the Index is to measure the average performance that holders of the relevanttype of bonds experience over time. This is achieved by creating a representative portfolio ofbonds, and measuring their performance

Family

BPAM Ringgit Bond Index

ALL

All typesGovernment

Aggregate

Sub-Indices

BondIndex

Sub-Indices represent

Bond Index comprise of

a series of sub-indices

Conv All Islm All


Quasi-government

Bank Negara NotesCorporate-guaranteed

Corporate

Financial

Maturity (years):All tenures, 0.25-1, 1-3, 3-7, 7 over

Ratings:Non Rated Goverment and Quasi

Governments,AAA, AA, A, BBB

Bond Sub-

Indices

Bond Constituents For

Individual Indices

characteristics of segments

that are within the overallindex characteristics


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At the close of each business day, the index constituents are reviewed. At this review,bonds may be added or removed according to following pre-defined rules

Eligible Bonds Rule

Credit Rule

Tenure Rule

ReviewOutstanding Amount Rule

Index and Sub-Indices Constituents

109

Weight Scheme Rule

Etc


Review

Bonds

100

101

102

103

104

105

106

107

108

03/01/2007

03/02/2007

03/03/2007

03/04/2007

03/05/2007

03/06/2007

03/07/2007

03/08/2007

03/09/2007

03/10/2007

03/11/2007

03/12/2007

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008


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Benefits

Beneficial uses of the index for users.

Market Driven Products developed in close cooperation with leading market participants Takes into account of local market conventions and behavior

Established International Standard The construction rules and calculation methodology broadly follow the EFFAS Standardised Rules

Accurate and Stable Data Source Direct MTM bond prices feed from our pricing service Values are available shortly after the release of our MTM bond prices

Variety of Choices


o ce out o + su - n ces to ensure t e spec c nee s o mar et part c pants are meet, e t n per ormance

measurement or data for portfolio research

User Friendly Navigation Index constituents, statistics and individual bond returns are available Customisable charts to analyse return performances and relative performances of different sub-indices


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Benefits

Performance benchmarking

Benchmark ofperformance measurement

Demonstrate added valueto intended sponsors for

fund managers

0.10%

0.15%

0.20%

0.25%

Daily returns of bond funds against the All Bond Index

FiiXTM All Bond Index

Bond Fund A

Bond Fund B

Bond Fund C


-0.20%

-0.15%

-0.10%

-0.05%

0.00%

.

02/01/2009

03/01/2009

04/01/2009

05/01/2009

06/01/2009

07/01/2009

08/01/2009

09/01/2009

10/01/2009

11/01/2009

12/01/2009

13/01/2009

14/01/2009

15/01/2009

16/01/2009

17/01/2009

18/01/2009

19/01/2009

20/01/2009

21/01/2009


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Benefits

Performance benchmarking using sub-indices

Benchmark ofperformance measurement

Demonstrate added valueto intended sponsors for

fund managers

0.10%

0.15%

0.20%

0.25%

Daily returns of bond funds against the Corporate AllSub-Index

Bond Fund A

Bond Fund B

Bond Fund C

FiiXTM Corporate All Sub-Indice


-0.20%

-0.15%

-0.10%

-0.05%

0.00%

.

02/01/2009

03/01/2009

04/01/2009

05/01/2009

06/01/2009

07/01/2009

08/01/2009

09/01/2009

10/01/2009

11/01/2009

12/01/2009

13/01/2009

14/01/2009

15/01/2009

16/01/2009

17/01/2009

18/01/2009

19/01/2009

20/01/2009

21/01/2009


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105

106

107

108

109

Benefits

Assessing the bond market - All bond total return index 3 Jan to 1 Dec 2008

FiiXTM All Bond Index

Heightened expectations of

aggressive rate cuts in theU.S.

Spate of negative news in world

financial market. Worldwide stock

markets collapsed. Flight-to-safety.

BNM cut OPR from3.5% to 3.25%

FiiXTM Simple

Average Returns

1 Month 2.55%

3 Months 4.45%

6 Months 3.07%

12 Months 4.83%


100

101

102

103

104

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008

Crude oil price escalating. Fear

of possible interest rate hike

because of inflation.

First Petrol price hike. July CPI

shoots to 7.7% YoY

1. Lehman

Brothers filed

bankruptcyprotection.

2. AIG sufferedliquidity crisis

following

downgrade of

its credit rating.


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Benefits

Assessing correlation with data sets CPI and All bond total return index 3 Jan to 1 Dec 2008

FiiXTM Simple

Average Returns

1 Month 2.55%

3 Months 4.45%

6 Months 3.07%

12 Months 4.83%

CPI 2008 Y-o-Y

Increase (%)

6%

7%

8%

9%

105

106

107

108

109


ov .

Oct 7.6%

Sep 8.2%

Aug 8.5%

Jul 8.5%

Jun 7.7%

May 3.8%

Apr 3.0%

Mar 2.8%

Feb 2.7%

Jan 2.3%

2%

3%

4%

5%

100

101

102

103

104

03/01/2008

03/02/2008

03/03/2008

03/04/2008

03/05/2008

03/06/2008

03/07/2008

03/08/2008

03/09/2008

03/10/2008

03/11/2008


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106

108

110

112

All Total Return Index By Tenure Buckets

ALL

1-3 Years

7+ Years

Benefits

Trend analysis and duration strategy

Using index data mayprovide indication of markettrend

Understanding markettrend in this case providesopportunities to useduration strategies inportfolio management

12

Sustained bullrun implies

holding longterm bonds as

a favoured

In bearmarket,

implication isto hold short

term bondsas afavoured

strategy


96

98

100

102

104

03-Jan-07

03-Feb-07

03-Mar-07

03-Apr-07

03-May-07

03-Jun-07

03-Jul-07

03-Aug-07

03-Sep-07

03-Oct-07

03-Nov-07

03-Dec-07

03-Jan-08

03-Feb-08

03-Mar-08

03-Apr-08

03-May-08

03-Jun-08

03-Jul-08

03-Aug-08

03-Sep-08

03-Oct-08

03-Nov-08

03-Dec-08

03-Jan-09

strategy


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Benefits

Data for fixed income research volatility study for market risk assessment

Ability to conduct fixedincome research, in thiscase, volatility computationto input into a market risksystem

Provides objectiveassessment of volatility andthe potential portfolio lostthrough Value-at-Risk0.08%

0.09%

0.10%

0.11%

0.12%

One Day Volatility Study 2-4 Years Segment

VolatilityA

VolatilityAA

VolatilityAAA

VolatilityCagamas


An alternative to yieldcurve volatility, i.e. creditclass index volatility

0.03%

0.04%

0.05%

0.06%

0.07%

04/01/2008

04/02/2008

04/03/2008

04/04/2008

04/05/2008

04/06/2008

04/07/2008

04/08/2008

04/09/2008

04/10/2008

VolatilityGII

VolatilityMGS


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Benefits

y = 0.35x - 0.0001R2 = 0.166

0.35%

0.60%

0.85%

utra05/07/11

Clean

Return

Putrajaya Hldgs 05/07/11 vs BPAM Ringgit Bond IndexPrice Return from 28-Sep-2007 to 30-Sep-2008

Data for fixed income research beta & alpha statistics for portfolio risk-return characteristics

Ability to conduct fixedincome research, in thiscase, compute beta, alphaand R squared statisticson index vs bond returnsfollowing CAPM andportfolio managementtheories

Provides objective

)(

),(

bond

market

marketbond

marketbondbond

rVar

rrCov

rr

=

+=

Alpha of -0.0001 meansover the period,irres ective of Index's


-0.90%

-0.65%

-0.40%

-0.15%

0.10%

-0.80% -0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60%

P

All Bond Price Index returns

volatility against indexs

Provides objectiveassessment of bonds riskand return characteristics

daily return, the bond was

-0.011% return per day.In a year this translates to-2.75%, a negativeperformance

Beta of 0.35 means a 1%increase or decrease inmonthly returns of indexwas accompanied by a0.35% increase ordecrease in Putra'sreturns

R2 of 16.6% of variation ofPutra's return isaccounted for byvariability in index


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Benefits

Technical analysis

Technical analysis forformulating tradingstrategies

94

95

96

97

98

99

100

10/2007

11/2007

12/2007

1/2008

2/2008

3/2008

4/2008

5/2008

6/2008

7/2008

8/2008

9/2008

Bollinger, EMA, SMA Technical Indicators from 30/09/2007 to 30/09/2008

20-Day SMA + Bollinger

- Bollinger 12-Day EMA

26-Day EMA


26/1

26/1

26/1

26/

26/

26/

26/

26/

26/

26/

26/

26/

0

10

20

30

40

50

60

70

80

90

100

19/10/2007

19/11/2007

19/12/2007

19/01/2008

19/02/2008

19/03/2008

19/04/2008

19/05/2008

19/06/2008

19/07/2008

19/08/2008

19/09/2008

RSI Technical Indicator on Bond Index, 30/09/2007 to 30/09/2008

RSI


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Index Facts

Data as of 1-Dec-2008Sector Breakdown By Market Capitalisation Rating Breakdown By Market Capitalisation

BNM0.13%

CorpGuaran-

teed1.28%

Corporate

24.46%

Financial1.70%Gov

Quasi Gov10.31%

A1.28%

AA16.68%

BBB0.12%

AAA9.36%BNM

0.13%

Quasi-Others5.13%

GII10.96%

Khazanah1.75%


Number Of Bonds 694

Market Capitalisation (RM million) 400,467

Average Coupon (%) 4.70

Average YTM (%) 4.04

Average Tenure (Days) 2033

Average Duration 4.52

Average Convexity 35.88

Portfolio Characteristics Top Five Issuers

Issuer Market Cap (RM million) Weight

Government of Malaysia 248,531,732,109 62.13%

Cagamas Bhd 13,687,461,125 3.42%

Binariang GSM Sdn Bhd 12,407,037,600 3.10%

K.L. International Airport Bhd 8,629,006,140 2.16%

Projek Lebuhraya Utara-Selatan Bhd 7,322,294,105 1.83%

. Cagamas3.42%

MGS51.17%


19/25

Delivery Channels

Three different delivery modes to suit clients requirements

BondStream

Ftp Feed for Customised Index

Web - www.bpam.com.my

103.25

103.75

104.25

104.75

105.25

105.75


99.75

100.25

100.75

101.25

101.75

102.25

102.75

3-Jan-07 3-Apr-07 3-Jul-07 3-Oct-07 3-Jan-08 3-Apr-08 3-Jul-08 3-Oct-08


20/25

AGENDA

The BPAM Bond Index - FiiXTM

Introduction

Index Objectives


The purpose of todays presentation is to introduce the BPAM Bond Index FiiX

TM

from a bondmarket players point of view


Benefits

Index Facts

Delivery Channels

Appendix

Construction Rules

Formulas


21/25

Construction Rules

BPAM all bond index bond inclusion rules compared to other indices

RulesItems * **

Currency Ringgit Ringgit U.S. dollars

Amount

Outstanding>= 50 mil

N/a for Govt>= 150 mil for corporate

>= 500 mil

RatingInvestment-grade rating, BBB3/BBB- andabove

A1 and aboveInvestment-grade rating, BBB3/BBB- andabove

Defining the index universe


Eligible

Instruments

Zero-coupon, fixed-coupon, bullet and

bonds with secondary-notes

Zero-coupon, fixed couponp on- ree xe ra e on s, ma e w o e

bonds)

Base Date 2007 1994 1996

Index

Return TypeTotal return, price return, coupon return Total return

Total return (represented in terms of

annualized yield)

Average

Risk StatsCoupon, modified duration, convexity,

yield, tenuremodified duration, convexity, yield

Coupon, macaulay duration, modified

duration, market value, price, yield, tenure

* Malaysian Bond Index (2005)** Dow Jones Corporate Bond Index (2006)


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Construction Rules


RulesItems * **

Principle Conventional and Islamic Conventional Conventional

Maturity0.25 to 1yr , 1 to 3 yrs, 3 to 7 yrs, above7yrs

1 to 3 yrs, 3 to7 yrs, above 7 yrs

1 to 5 yrs, 5 to 10 yrs, above 10 yrs1 to 10 yrs, All yrs

1.5 to 3.5 yrs, 3.5 to 7.5 yrs, 7.5 to 17.5

yrs,above 17.5

CreditGovernment, Pseudo Government and

Supras, Corporate

Government, Khazanah, Cagamas and

CorporateCorporate

Defining the index universe


Price

Source

Marked-to-market prices from Bond

Pricing Agency Malaysia

Average bid levels from at least two sources One mid / bid / ask level from Reuters

Weighting Market capitalisation Market capitalisation Equal weighted

Settlement Next business day (T+1) n/a n/a

Re-

investmentCash flows are reinvested into the index Cash flows are reinvested into the index n/a



23/25

Construction Rules


RulesItems * **

Timing andFrequency

6.15p.m. daily DailyMonthly, by the end of first day of themonth

FactorsUsed for

Review

New issues, credit rating changes,

outstanding amount changes, maturity ofissues

New issues, credit rating changes, outstanding

amount changes, maturity of issues

New issues, credit rating changes,

outstanding amount changes, maturity ofissues

Day of

announce-ments to

N/a as review and rebalancing occurs N/a as review and rebalancing occurs on aOn the 25th of each month

Reviewing and Rebalancing


actions

taken

a y pr c ng a e ( a y)



24/25

Formulas

Market capitalisation scheme and descriptive statistics formulas

Market capitalisation/value weighted calculationIndividual security is weighted by its market value giving large issues a greater role in influencing the indexCalculation method intends to emulate portfolio performanceCalculation reflects change from previous days portfolio performance (chain-link method)

Bond constituents daily total return: Indexs Daily Total Return:

where

Total Return Index:

1,1,

1,1,,,,,

,

)()(

+

++++

=

titi

titititititi

tiAIP

AIPIAIPrinPTR

=

+

+=n

j

tjtjtj

tititii

NAIP

NAIPw

1

1,1,1,

1,1,1,

))((

)(=

=n

i

tiiti TRwITR1

,,

1)1( += ttt TRIITRTRI


Descriptive statistics calculationIn contrast to Index Returns and Levels, Index Statistics are calculated to reflect the risk profile of the Index, afterrebalancing has occurred, i.e. for the succeeding day

=

=

n

i

tiit YwAYYTMaverage1

,')(

=

=

n

i

tiit APwAPpricecleanaverage1

,')(

=

=

n

i

tiit TwATmaturityaverage1

,')(

=

=

n

i

tiit MDwAMDdurationaverage1

,')(

=

=

n

i

tiit CwACconvexityaverage1

,')(

=

=

n

i

tiit CRwACRcouponaverage1

,')( =

+

+

=n

j

tjtjtj

tititi

i

NAIP

NAIPw

1

,,,

,,,

))((

)('

where


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THANK YOU

Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.Copyright Bond Pricing Agency Malaysia SDN.BHD. - All rights reserved.

19-8 , The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, MalaysiaTel: +603 2772 0899 Fax: +603 2772 0808 Email : [email protected]

Darryl [email protected]

Financial Engineer

fiix bond index - bpa malaysia road show

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