The investment strategy of ICICI Prudential Short Term Growth is rooted in duration calls and spread analysis. To understand where the interest rate cycle is headed and determine the portfolio’s average maturity, fund manager Manish Banthia studies macroeconomic factors such as the gross domestic product growth rate and inflation data, as well as short-term factors such as liquidity conditions.
In keeping with its positioning as a short-term offering, the manager maintains the portfolio’s average maturity in the range of three to five years. While constructing the portfolio, he deploys a bucket strategy wherein a substantial portion of the assets are consistently held in the three- to five-year maturity bucket and the satellite portion is invested in diverse maturity buckets.
Spread analysis determines the allocation to various segments such as corporate bonds, gilts, and cash. For instance, the allocation to gilts rose from 3% of assets (as of August 2012) to 38% of assets (as of December 2012) in response to compressing spreads between corporate bonds and gilts. It currently stands at 36% (June 2016).
In the past, Banthia ramped up his exposure to sub-AAA-rated debt given the higher spreads available on this paper. The exposure to sub-AAA-rated debt increased to almost 48% of the portfolio (June 2014). This exposure has since been pruned and is now less than 15% (June 2016). This reflects Banthia’s views on the credit cycle and is restricted to companies where he has confidence in the management and financials. Examples of the fund’s current exposures are manufacturing companies such as Tata Motors and Ashok Leyland, and non-banking financial companies such as Tata Motor Finance, Sundaram Finance, and Bajaj Finance.
While picking securities, Banthia attempts to capture spreads between gilts and corporate bonds by studying historical spreads between the two. He also draws on his understanding of the market, its working, and intricacies. This is especially perceptible in his trades between public- and private-sector entities of similar credit quality, wherein he relies on technical factors such as historical yield movements in reaction to changing interest rates while building positions.
However, the execution of the strategy has been ordinary so far--for instance in 2012, his view that interest rates wouldn’t soften substantially resulted in a portfolio with a maturity profile that prevented him from fully exploiting falling yields. Similarly, he maintained a high portfolio maturity compared with peers in 2013 when yields moved higher due to macroeconomic problems in India. This led to an ordinary performance in that year. We would like to see a more adept execution of the investment process on a consistent basis to be able to draw confidence from it.
On Manish Banthia’s watch (November 2009 to May 2016), the fund’s performance has been average. It has clocked annualized growth of 8.28%, compared with the Short-Term Bond Category average of 8.23%, which ranks in the category’s 46th percentile. In four out of the six calendar years Banthia has led the fund, it has barely matched the category’s average performance, which is a cause for concern.
Under Banthia thus far, the fund has failed to impress on the risk/return front. It has exposed investors to higher risk (as measured by standard deviation, a statistical measure of volatility) vis-a-vis the typical category peer. The fund’s showing on the Morningstar Risk-Adjusted Return parameter is worse than the category average, as is borne out by its 59th percentile rank.
- Analyst Rating: Neutral
- Star Rating: 5 stars
- Category: Short-Term Bond
- Fund Manager: Manish Banthia
- Investment Strategy: The fund manager freely invests across the corporate bonds, gilts and cash segments. Duration plays and spread analysis are central to the investment strategy.
- Performance: Manish Banthia has yet to come into his own as a manager. Over Manish Banthia’s stint so far, the fund has been a mediocre performer.
You can read a brief synopsis of the fund here.
