Our fund analysts recently re-visited 5 debt funds of HDFC Mutual Fund. One fund was upgraded, one downgraded, while the remaining had their ratings reaffirmed.
HDFC Cash Management Fund - Treasury Advantage Plan - Retail Plan – Growth
Fund manager Anil Bamboli plays it safe with this ultra-short bond fund, with a focus on safety and liquidity of the portfolio. The process is highly research-oriented and looks at the business and financial risks of a company before making an investment. The investment team combines qualitative aspects with rigorous quantitative analysis to arrive at a credit score for companies. Though a high-quality and liquid portfolio, the conservative strategy has led to muted returns since 2008. Combined with a high expense ratio, it could dent the fund’s prospects to outperform its peers over the long haul.
Rating: Neutral
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HDFC Gilt Fund Long Term Plan Growth
The fund is one of the cheapest options in its category but has areas for improvement. Investments are made in sovereign securities issued by the central government. Duration and yield-curve positioning are the main sources of return and the fund typically operates within a duration range of 2-7 years. The research is largely top-down and though it focuses mostly on medium- to long-term themes, it also seeks to respond to short-term market movements and assesses numerous factors to make short-term tactical bets, along with trading around gilts to capture spreads between mispriced securities. The strategy, however, has produced middle of-the-road results over the long haul.
Rating: Neutral
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HDFC Income Fund Growth
HDFC Income Fund is a reasonable, not outstanding, choice. For this fund in particular, macro-economic analysis, spread analysis and value assessment are the main sources of excess return. Although portfolio manager Shobhit Mehrotra has the latitude to take credit in the portfolio, the fund is positioned more conservatively than others as Mehrotra emphasises safety over returns. Hence, the quantum of credit bets stand reduced and those taken are generally in quality companies in which the investment team has high levels of comfort. That said, Mehrotra asserts a high conviction view when he sees value, shifting allocations in response to his views on the relative spreads between gilts and corporate bonds. While the team has managed the credit side of the portfolio well, its ability to implement medium to long-term views based on the macro-economic outlook has not been impressive. A higher-than-average expense ratio hurts performance.
Rating: Downgraded from Bronze to Neutral
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HDFC High Interest Fund - Short Term Plan Growth
Shobhit Mehrotra’s disciplined approach and skilled execution makes this fund a reliable option. Mehrotra’s investment approach in this fund is reasonably straightforward, part of which is sticking to a mandate that securities with a maturity of more than 2 years cannot account for more than half the portfolio. Hence, taking duration calls isn’t a big part of the strategy. Rather, Mehrotra’s emphasis is on security selection and he adheres to the fund’s short-term billing at all times. He also doesn’t believe in taking on credit risk and invests primarily in higher-quality fare and paper issued by public sector undertakings. The fund has much to offer patient investors who put a premium on safety.
Rating: Silver
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HDFC Medium Term Opportunities Growth
Much like other funds he leads, fund manager Shobhit Mehrotra and the investment team ply fundamental research using both qualitative and quantitative parameters to identify robust, creditworthy companies. The portfolio shows a bias for higher-quality fare and securities issued by public sector undertakings, a style in which the investment team has developed expertise. The fund’s mandate requires the manager to invest in securities with maturities not exceeding 60 months. When interest rates fall sharply, the manager won’t be able to go to the longer end of the yield curve like some peers, thereby running the risk of underperformance. Similarly, in times when credit markets are buoyant, the fund may find it hard to match aggressively run peers that are willing to go down the credit curve. Low fees are this fund's greatest asset.
Rating: Upgraded from Bronze to Silver
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