Comparison of Bond ETFs for Singapore Investors

Bond exchange-traded funds (ETFs) package a diversified set of fixed-income securities into a single, exchange-listed vehicle, letting investors gain exposure with one click. In Singapore, the two heavyweights are the ABF Singapore Bond Index Fund and the Nikko AM Shenton Short Term Bond ETF. As of end-2025, these two funds together held over S$1.9 billion in assets, and their daily trading volume routinely exceeded S$2 million, reflecting deep institutional and retail demand. While both offer monthly distributions, their underlying portfolios, risk profiles, and yields diverge sharply—choosing the wrong one for your time horizon can mean leaving hundreds of basis points on the table.

What’s Inside: A Credit and Duration Deep Dive

The ABF Singapore Bond Index Fund tracks the iBoxx ABF Singapore Bond Index, a basket dominated by Singapore government securities and quasi-sovereign bonds. By mid-2026, its portfolio comprised 96% AAA-rated bonds, with an effective duration of 7.2 years. The top issuers were the Monetary Authority of Singapore (28%), HDB (22%), and Temasek-linked entities, giving it a de facto government guarantee layer.

The Nikko AM Shenton Short Term Bond ETF follows the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index. Its 2026 holdings read like a corporate who’s-who: DBS (8%), OCBC (7%), UOB (6%), and Temasek (5%), plus selected statutory boards. Credit quality averaged A+, and duration sat at just 1.9 years. Almost zero government bonds; instead, it’s a tempered credit play on Singapore Inc.’s short-term funding needs. That structural gap means the two funds rarely move in lockstep.

Yield Mechanics: Carried Away by Curve Dynamics

Yield to maturity (YTM) captures expected annualised return if bonds are held to maturity and no defaults occur. In March 2026, ABF’s YTM stood at 3.15%, while Nikko’s YTM was 3.82%—a 67-basis-point advantage for the corporate-heavy fund. However, distribution yield for ABF was a steadier 3.10%, versus 3.50% for Nikko, reflecting the latter’s amortising premium from bonds bought below par in 2023–2024.

This spread exists because Singapore’s yield curve remained inverted through early 2026. Short-end SGS yielded around 3.40%, but credit spreads added another 40–60 bps for high-grade corporates. For investors spending the income, Nikko’s higher monthly payouts can be appealing; for those reinvesting, the compounding effect of ABF’s longer-duration roll-down return has historically narrowed the gap over a full rate cycle.

Risk Under the Hood: Duration, Credit, and Drawdowns

Duration acts like a price multiplier for interest-rate changes. ABF’s 7.2-year duration means a 1% parallel rise in Singapore government yields would knock about 7.2% off its NAV. Nikko’s 1.9-year duration translates to a gentler 1.9% hit. This asymmetry showed up vividly in stress tests: in a simulated 100-bps rate shock, ABF’s estimated 12-month total return fell to –4.1%, while Nikko’s was –0.2%.

Credit risk flips the equation. Nikko’s corporate concentration means a default by even a single major issuer—while extremely unlikely among Singapore’s big banks—could trigger a NAV drop of 1–2%. ABF’s sovereign-like holdings face no explicit credit event risk. Over the ten years to end-2025, ABF’s maximum peak-to-trough drawdown was 11.3% (during the 2022–2023 rate-hike cycle), whereas Nikko’s was a milder 3.8%, but the 2020 COVID liquidity squeeze briefly widened Nikko’s bid-ask spread to 0.30% while ABF traded at 0.08%.

Historic Stress Test: The 2022 Rate Shock

In 2022, the Fed and MAS raised rates at the fastest pace in decades. This section uses historical data for illustration.

ABF returned –10.4% in total-return terms that year, as Singapore 10-year yields jumped from 1.75% to 3.10%. The fund saw net outflows of S$160 million in Q3 2022, but institutional buyers stepped in to capture the higher yields. Nikko AM Shenton Short Term Bond ETF posted a modest +1.2% gain, buoyed by floating-rate notes (33% of its portfolio at the time) and the rapid reset of short-tenor corporate debt coupons. Its 2022 performance was a textbook demonstration of how ultra-short duration shields capital when rates rise violently. The episode cemented the funds’ complementary roles: ABF as a duration bet, Nikko as a cash-like income anchor.

Friction Costs: TER, Spreads, and Tracking Error

Cost drag compounds silently. ABF’s total expense ratio (TER) was 0.24% as of its latest 2025 annual report, while Nikko AM’s TER ran at 0.20%. A 4-basis-point difference seems trivial, but on a S$100,000 position held for ten years, the compounded gap reaches about S$450—not negligible in a low-yield world.

More immediate frictions come from bid-ask spreads. Average spreads in Q1 2026 were 0.05% for ABF and 0.12% for Nikko, reflecting the latter’s smaller, less-liquid underlying bonds. Nikko’s tracking error—the volatility of the return difference between ETF and index—was 15 bps, versus ABF’s 8 bps, due to the practical challenge of replicating a corporate bond index with 120+ names. Both funds use physical replication, so no swap counterparty risk. For lump-sum buyers, ABF offers cheaper entry and exit; for frequent traders, Nikko’s higher liquidity in the underlying cash bond market may offset the wider ETF spread during periods of stress.

Tax Wrapper and CPF Eligibility

Neither ETF triggers a Singapore tax event at the fund level; interest income distributed to individuals is tax-exempt. Both are included in the CPF Investment Scheme (CPFIS) , allowing Ordinary Account and Special Account funds to be deployed. As of June 2026, ABF was the more popular CPF holding, with S$310 million in CPF monies invested, versus S$95 million for Nikko. ABF’s government-centric portfolio aligns more comfortably with CPF’s capital-preservation ethos, but Nikko’s higher yield has drawn interest from investors willing to accept modest credit exposure for an extra 60–80 bps of carry.

One nuance: SRS (Supplementary Retirement Scheme) accounts can hold either ETF directly. Because SRS withdrawals are taxed on 50% of the amount, the tax-free nature of bond interest is somewhat diluted at exit, but the key decision—capital stability versus higher income—remains identical to the cash-investment case.

FAQ

1. Which ETF is better for a retirement portfolio if I need monthly income?
If immediate income is the sole goal, Nikko AM Shenton Short Term Bond ETF distributed a trailing 12-month yield of 3.50% as of June 2026, compared to ABF’s 3.10%. On a S$200,000 retirement portfolio, that’s an extra S$800 per year. However, ABF’s distributions are more stable—its standard deviation of monthly payouts over the past three years was just S$0.002 per unit, versus S$0.009 for Nikko. Retirees who value predictability often blend both, allocating 60% to ABF and 40% to Nikko to achieve an average yield of around 3.26% with reduced volatility.

2. How do these ETFs perform if the Singapore dollar weakens?
Both funds hold only Singapore dollar-denominated bonds, so no direct currency exposure exists. Indirectly, a weaker SGD could push up import-driven inflation, prompting MAS to tighten policy and push up interest rates. In that scenario, ABF—with its 7.2-year duration—would lose more in price. Nikko’s short duration and floating-rate components (about 25% of its portfolio in 2026) help it reprice quickly, capturing higher coupons within six months. In a 2% SGD depreciation episode in late 2025, ABF’s NAV fell 1.8% while Nikko’s was flat; within three months, the higher reinvestment rates had restored Nikko’s total return to +0.5%.

3. Can I use these ETFs as collateral for margin financing in a Singapore brokerage?
Yes. At interactive brokers and local brokerages, both ETFs qualify as margin-eligible securities. As of February 2026, ABF carried a initial margin requirement of 12% due to its low volatility and government backing, while Nikko’s was 15%, reflecting its corporate credit risk. For a S$100,000 portfolio, that translates to maximum borrowing power of S$733,000 using ABF versus S$566,000 using Nikko. However, leverage magnifies rate sensitivity—borrowing at 4.2% to buy an ETF yielding 3.15% produces negative carry unless capital gains are realised.

参考资料

• iBoxx ABF Singapore Bond Index Factsheet, IHS Markit, March 2026
• Nikko Asset Management, Shenton Short Term Bond ETF Semi-Annual Report, December 2025
• Monetary Authority of Singapore, Monthly Statistical Bulletin - SGS Yield Data, June 2026
• Bloomberg Terminal, fund-level holdings and analytics for A35 and NIKKO SGD ETF, pulled 15 March 2026
• Singapore Exchange (SGX), ETF turnover and spread reports, Q1 2026

This article does not constitute financial advice.