109740  |  INF109K01BO8  |  5 star  |  Neutral

NAV

$ 23.98

1-Day Total Return

0.01
%
INR | NAV as of 15/12/2017 10:30:00 | 1-Day Return as of 15 Dec 2017

TTM Yield

0.00%

Load

Multiple

Total Assets

43.6 bil

Expenses

1.00%

Fee Level

--

Turnover

511%

Status

Open

Min. Inv.

5,000

30-Day SEC Yield

--

Category

Intermediate Bond

Credit Quality/Interest Rate Sensitivity

High/Limited
Author
Morningstar's Take | 20/09/2017
by Nehal Meshram

A highly experienced manager employing an established process drives our confidence, but our concern stems more from the fund’s strategy, which we believe offers investors a rather limited opportunity for outperformance. The investment strategy centers on managing the fund passively with not much flexibility to change the duration or the credit profile of the fund based on the fund manager’s views. In keeping with this, Manish Banthia maintains the portfolio’s average maturity at roughly five to six years. Thus the fund is likely to do well only in the highly specific scenario of a bull run in that particular maturity bucket, and the outperformance of the fund would be due to strategy doing well, rather than the execution skill of the fund manager.

With a view to keeping the portfolio liquid and to steer clear of any downside arising from a credit default, Banthia invests only in AAA-rated securities and holds them to maturity. The emphasis on safety can be gauged from the high allocation to paper from public sector undertakings. With the adherence to its restricted mandate the fund has avoided taking exposure in government securities and state development loans. The trouble with this approach is that it leaves the fund with a rather narrow window to deliver, that is, when interest rates are on the decline. Conversely, if the interest rate cycle doesn’t play out as expected--if interest rates rise or if they are range-bound--then the strategy could well struggle. With this, Banthia is unable to execute his active investment style.

The strategy doesn’t allow the team to play to its strength. The fund may also struggle relatively in a lower interest-rate environment as peers will have the ability to position themselves on the longer end of the yield curve versus this fund. On a positive note, the fund's lower total expense ratio enhances its appeal to some extent. However, it will take significantly more to make the fund a solid offering. Unless there is evidence to suggest that the manager can add value within the constraints of the strategy, our conviction in its prospects remains muted.

Morningstar Analyst Rating™
Analyst Rating
Portfolio Role

Primarily invested in high-quality PSU papers with average portfolio maturity of five to six years.

People

Investment team ranks well on the duration as well as credit management front.

Parent

ICICI Prudential AMC’s stewardship is in line with the industry norm.

Process

The fund’s constrained investment manadate holds back the manager to play to his strength.

Performance

The fund likely to struggle when duration and credit risk are being rewarded.

Price

Inexpensive proposition as against the category median.

Important Disclosures

Unless stated otherwise, this report was prepared by the person(s) noted in their capacity as Manager Research Analysts (i.e., fund analysts) employed by Morningstar, Inc., or one of its affiliates. It has not been made available to the issuer prior to publication.

Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Manager Research Analysts’ expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness.

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