IDFC Dynamic Bond Fund
- Star Rating: 4 stars
- Analyst Rating: Silver
- Date of Analysis: May 2017
It’s tough not to have conviction in IDFC Dynamic Bond. An experienced manager in Suyash Choudhary and sound investment process inspire confidence that its future is as bright as its past.
Among fixed-income funds that are run with a duration strategy, this fund ranks as a worthy candidate. It has blossomed under Choudhary’s stewardship since October 2010. He is seasoned in managing duration strategies. His strength lies in his in-depth understanding of the macroeconomic environment and his ability to anticipate interest rate movements and identify attractive investment opportunities across market segments. He is at his best investing in an unconstrained manner.
The fund’s investment strategy complements Choudhary’s investment style. He seeks to add value by taking active duration calls rather than credit bets. He therefore plies a fluid investment approach that allows him to invest across the yield curve and segments: government securities, corporate bonds, and money market instruments. He does not shy away from taking contrarian calls if he believes the risk/reward is favourable. The strategy is not without risk. For instance, the strategy of freely moving across the yield curve hurt the fund’s showing in 2015 when the manager’s expectation of yields softening on the longer end of the yield curve didn’t pan out. Likewise, his penchant for taking contrarian calls can prove counterproductive.
Choudhary continues to shoulder the maximum fund management responsibilities within the team. Having said that, some of them are run with a similar approach, making his job a tad easier. He also intends to gradually reassign some of his funds to other managers as they gain more experience. We see steps are being taken in that direction. Finally, there is a key-person risk in Choudhary, particularly on the duration strategies he runs.
We draw confidence from his presence at the helm, which in our opinion is a big positive. We believe his skills and research-driven approach should hold the fund in good stead going forward. Hence, we upgrade the fund’s Morningstar Analyst Rating to Silver from Bronze.
IDFC Super Saver Income Fund – Investment Plan
- Star Rating: 5 stars
- Analyst Rating: Bronze
- Date of Analysis: May 2017
This fund has an accomplished manager and an appealing mandate. However, as highlighted in our previous review (in June 2016), its high expense ratio takes some sheen away from it.
Among fixed-income funds that are run with a duration strategy, this fund ranks as a worthy candidate. The fund has blossomed under the stewardship of Suyash Choudhary, who took the helm in October 2010. He is a seasoned manager in managing duration strategies. His strength lies in his in-depth understanding of the macroeconomic environment, ability to anticipate interest-rate movements, and skill identifying attractive investment opportunities across market segments. He is at his best investing in an unconstrained manner.
The fund’s investment strategy complements Choudhary’s investment style. The manager seeks to add value by taking active duration calls rather than credit bets. He therefore plies a fluid investment approach that allows him to invest across the yield curve and segments--government securities, corporate bonds, and money market instruments. Also, he does not shy away from taking contrarian calls if he believes the risk/reward is favourable. The strategy is not without risk. For instance, the strategy of freely moving across the yield curve could hurt the fund’s performance if the manager’s view on interest rates doesn’t pan out as expected. Likewise, the penchant of taking contrarian calls can prove counterproductive as well.
Choudhary continues to shoulder maximum fund management responsibilities within the team. Having said that, few of them are run with a similar approach, thus making his job a tad easier. He also intends to gradually reassign some of the funds managed by him to other managers as they gain more experience. We see steps are being taken in that direction. Finally, there is a key-person risk in Choudhary, particularly on the duration strategies he runs.
We continue to draw confidence from Choudhary’s presence at the helm, which in our opinion is a big positive. However, the fund’s high expense ratio is a cause for concern as it may affect its performance. In the light of the same, we are reiterating its Morningstar Analyst Rating of Bronze.
DSP BlackRock Strategic Bond Fund
- Star Rating: 4 stars
- Analyst Rating: Neutral
- Date of Analysis: May 2017
The fund house is placed in the upper echelon of the country’s best asset managers. However, with the recent restructuring in the fixed-income team, the fund has to retain its position with the new managers.
Under Dhawal Dalal’s leadership, the fund has successfully endured various market cycles since its inception in May 2007. Post his departure, Vikram Chopra and Pankaj Sharma took the charge of the fund; however, under both managers, the fund performance is yet to make a positive impact. Lead manager Chopra is new in the fund house and has yet to establish a reputation. Sharma’s previous experience and diverse base of having a good perspective on risk management is an advantage, but he does not have sufficient experience in managing the funds either.
The execution of the process has been good with a disciplined investment process. They consistently add value through an integrated team approach, which combines dedicated macroeconomic and strategic analysis with rigorous fundamental credit research, disciplined portfolio construction, and risk management. The investment team in India is well integrated globally and has access to BlackRock’s significant investment expertise, advanced technology platforms, and robust risk-management practices to leverage team resources and facilitate the sharing of ideas in the best manner possible.
The fund’s philosophy is to ensure a quality portfolio, and the fund mainly invests in liquid AAA rated corporate bonds. Its mandate is flexible in nature, permitting the portfolio manager to invest across the duration spectrum as well as in debt instruments that have a high probability of upgrades or spread compression. The fund’s long-term record is still solid, and the expense ratio is substantially lower than the category median, which makes it an attractive investment proposition. However, given the recent change in the fund management team, we are yet to build conviction in the strategy under the new managers; thus, we assign the fund a Morningstar Analyst Rating of Neutral.
Reliance Dynamic Bond Fund
- Star Rating: 4 stars
- Analyst Rating: Bronze
- Date of Analysis: December 2016
Reliance Dynamic Bond offers a structured and adaptable brand of management for risk-tolerant investors.
Manager Prashant Pimple has skillfully exhibited the strategy by more actively managing the portfolio than many of its intermediate bond peers. He combines duration plays and credit selection by focusing mainly on safety and liquidity. Pimple actively manages duration between 1.0 and 7.0 years based on his view on interest rates. The main appeal in this fund has been the execution of the strategy. Pimple adopts a two-pronged strategy to manage this fund. The investment team first develops a view on interest rates and then these views are integrated to build core and tactical strategies position based on the fund mandate. While 60%-70% of the fund’s portfolio reflects the strategic long-term view, 30%-40% of the portfolio is invested tactically to take advantage of changes in short-term interest rates. The process is robust with an overlay of active trading executed through government securities. The manager runs a quality portfolio and thus invests only into AAA rated corporate bonds.
Pimple is a competent manager and is supported by a highly experienced, adequately resourced, and stable investment team, which adds to the fund’s appeal. The manager has an overall experience of 15 years, of which 10 years have been with Reliance Nippon Life AMC. Amit Tripathi, CIO – Fixed Income, plays a supporting role in terms of determining the overall fixed-income strategy. While the team has managed the duration side of the portfolio extremely well based on the macroeconomic outlook, its ability to implement the credit strategy has also been good. The fund’s otherwise above-average performance track record is slightly waned by the fund’s high expense ratio.
The strategy makes the fund a fairly volatile proposition. Indeed, its standard deviation is higher than that of a typical peer in the intermediate-bond Morningstar Category. Investors should note that longer-duration funds are highly sensitive to interest-rate movements. However, Pimple has demonstrated considerable skill in executing this strategy with this investment style, and, hence, we give the fund a Morningstar Analyst Rating of Bronze.
