It means that the bond fund is not as defensive as you might think, and is taking risk way beyond allowable limits. In the prospectus they are only allowed to purchase BBB and above rated bonds, which is suppose to be very financially strong. So how does a fund like that can end up owning Tracoma bonds which is rated D? Also >20% of their other assets are also rated below BBB. Looks like very bad risk management for a bond fund, which is directly flaunting the allowable limits listed in the prospectus.

So next time before you buy anything, READ THE PROSPECTUS & ANNUAL REPORT.

Anyway since you have a foot into it, keep until the company liquidation is complete which can take anywhere from 6 months to a few years to recover some little cash. Remember, debtors get paid first, then whatever remains only given bondholders.

Anyway quoted from wiki...

Rating BBB: An obligotions rated 'BBB' has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligations to meet its financial commitments.

Rating D: has defaulted on obligations and S&P believes that it will generally default on most or all obligations

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Added on November 5, 2011, 10:20 amBacause they are flaunting or exceed their investment mandate as per listed in their prospectus, thus their risk factor goes up exponentially. Play with fire and get burned.

Most other bond funds in Malaysia generally only hold A - AAA grade bonds, which is investment grade.

This post has been edited by gark: Nov 5 2011, 10:24 AM

Look at previous record...by RHB bond, 70%-80% claim rate?

Write-down of RHB Islamic Bond Fund Holdings

Memory Tech Sdn Bhd Owes- 5,054,883 Recovered - 58,778
Ingress Sukuk Bhd Owes -212,767 Recovered - 212,767

The recovery from memory Tech is only about 10%. For Ingress, it is lucky as the company did not end up bankrupt.

Yes bond fund have risk, but this RHB management is directly flaunting the mandate given by it's unit holders. By holding >20% in BB or less bonds, the fund manager is taking a higher risk bet than he is allowed to. If it pans out, then the fund will reap high rewards, if not then they suffer. Than is the meaning of risk/reward, it can cut both ways.

Ahem, although AmDynamic bond is doing well, about a year ago it too went beyond it's prospectus, it was also holding BBB and BB bonds in 2008-2010, but the bet paid off, that's why you see such big performance jump then. If the bet failed, you all will be cursing AmDynamic now...

Now they have reduced the risk substantially by holding A and AA bonds. Anyway the management is 'smart' to reduce the risk when the opportunities arrive. But RHB did not...

Before you buy bond funds there are several items you need to consider.

1. Rating from AAA to D, which signify the risk factor
2. Bond Duration, the longer the duration, the higher risk it takes.
3. Interest Rate, bond prices are generally inverse with Interest rate

Don't be mistaken, bond fund can be managed to be 'safe' or more 'risky' than the equity market.

Big multi billion companies that has bankrupt because of badly managed bonds holdings includes. LTCM (Russian bonds) and MF Global (Italian Bonds). Ever heard of company bankrupt because of investing in share market?

If you all want 'safe' but reasonable performance bonds look for the following criteria.

1. Bond Grade - A to AAA only
2. Duration - 3 to 5 years
3. Buy when interest rate is high....

This post has been edited by gark: Nov 7 2011, 10:52 AM

1st - You are not sure of the recoverable amount and the asset write down. Some assets can only be sold as junk...

2nd - The liquidation can take from 6 months to >5 years depending on the 'saleability' of the asset and completion of ALL the court cases which is associated with bankruptcy. All the bank creditors, suppliers, LHDN, former employees will start suing if they are owed money.

Can wait so long?

This post has been edited by gark: Nov 7 2011, 10:51 AM

Now maybe so.. but looking at the track record of the manager, if in the future he decide to gamble again by buying junk bonds then how?

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Added on November 7, 2011, 2:41 pmNegative outlook, have been downgraded 3 times and "heightened risk that upcoming payment obligations in January 2012 cannot be met", means might not have enough money to pay debt in Jan 2012.

It remains a time bomb at RHB Islamic Bond fund...

This post has been edited by gark: Nov 7 2011, 02:53 PM

If you switch now, means you take the 8% paper loss into actual loss straight away. If you stay put in the RHB Islamic bond fund you will at least recover your loss, and possibility of getting a write-back to the fund. This will take approximately 1-1.5 years based on previous performance However if you are scared of more write down, then switch your money to another fund.

Your future money can then be put into another bond fund. If you want to put in AmBond it is ok, as it is a more conservative fund than AmDynamic, and should be less risky. Other than that take a look at bonds funds by Public Mutual as they are reasonably run and have lower management fees of (0.75%) than other bond funds.