UTI Dynamic Bond
- Star Rating: 5 stars
- Analyst Rating: Bronze
- Date of Analysis: October 2017
- Morningstar Analyst: Kavitha Krishnan
- Credit Quality: High
- Interest Rate Sensitivity: Limited
This fund is a good choice for investors who prefer consistency. The fund’s appeal hinges heavily on the experience of its lead manager and the team’s consistent application of the investment process.
While we have conviction in fund manager Amandeep Singh Chopra and the expertise that he brings to the processes within the fund house, we are wary of the lack of experience in the analyst team.
The investment approach is primarily driven based on a top-down macro approach, and duration views are based on the interest-rate-directional movements. Allocation towards government securities, corporate bonds, and state-development loans, on the other hand, are based on their relative spreads. The manager aims to invest in the most liquid corporate bonds and the most traded government-security papers with a view to minimise portfolio risks.
The fund is run with a lot of focus on risk management measures. For example, the process dissuades managers from chasing momentum or taking aggressive duration calls. The internal risk team is also involved at every stage of the process including the approval of new issuers and setting counterparty limits. While this approach could lead to a slowdown in the overall execution, we think that it has also helped the fund navigate trickier markets and post consistent returns across market cycles.
The success of the fund depends largely on the team’s ability to allocate between duration and credits and by the team’s ability to take the right macro calls and position itself across yield curves. These factors are reflected in the positive performance on the fund both on a cumulative as well as a year-on-year basis. Our conviction rests on the processes at the AMC, the stability and the experience that Chopra brings, and the consistency in the fund’s performance.
Aditya Birla Sun Life Dynamic Bond
- Star Rating: 4 stars
- Analyst Rating: Silver
- Date of Analysis: October 2017
- Morningstar Analyst: Kavitha Krishnan
- Credit Quality: Medium
- Interest Rate Sensitivity: Moderate
Maneesh Dangi has been running this fund since 2007 and is an old hand at the Birla Sun Life Asset Management Company. His expertise stands out, and his views resonate throughout the fixed-income team.
The fund's investment strategy is rooted in a combination of duration and credit calls. The ability to allocate between government securities and corporate bonds, take the right interest-rate directional views, and ensure thorough fundamental research on issuers all constitute important aspects of this fund. Dangi can go down the credit ladder when required and move aggressively between corporate bonds and government securities based on their relative spreads.
The strategy is well-defined and in line with the fund's investment proposition. The issuer-selection process seems extremely detailed and based on a very well-defined set of processes.
The team relies on its internal ratings and processes as opposed to external credit-rating agencies. The in-depth macro research and the presence of dedicated macro analysts also ensure thorough evaluation from a macro perspective.
The strategy is not without risks. The fund follows a highly concentrated approach with respect to sovereign paper and invested up to 60% in a single long-term government-securities paper in 2016. While this aids in managing duration effectively, the risks are also elevated. Further, the high expense ratio versus peers is also an area of concern.
That said, we draw confidence from Dangi's presence at the helm and his investment approach. We believe that the fund has the wherewithal to deliver above-average returns over the long term.
Our conviction rests on Dangi's ability to execute this strategy with finesse and the impressive long-term performance.
Reliance Dynamic Bond
- Star Rating: 4 stars
- Analyst Rating: Bronze
- Date of Analysis: December 2017
- Morningstar Analyst: Nehal Meshram
- Credit Quality: High
- Interest Rate Sensitivity: Moderate
Reliance Dynamic Bond offers a structured and adaptable brand of management for risk-tolerant investors.
Manager Prashant Pimple has skillfully exhibited the strategy by actively managing the portfolio. The fund endeavours to generate returns through proactive duration-management over the medium to long term based on the manager’s view on interest rates. The main appeal of this fund is 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 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 and research based with an overlay of active trading executed through G-Secs. The flexible portfolio construction processes enable the manager to generate the most optimal blend of securities. With this approach, the manager takes opportunistic bets on G-Secs to increase the duration, and to provide liquidity he takes higher exposure in money market instruments. The manager also runs a quality portfolio and invests only in G-Secs and 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. Amit Tripathi, CIO of 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 dimmed by the fund’s high expense ratio.
The investment strategy makes the fund a fairly volatile proposition. Indeed, its standard deviation is higher than its peer and Pimple has demonstrated considerable skill in executing this strategy.
SBI Dynamic Bond
- Star Rating: 3 stars
- Analyst Rating: Bronze
- Date of Analysis: April 2018
- Morningstar Analyst: Nehal Meshram
- Credit Quality: High
- Interest Rate Sensitivity: Limited
The experienced team behind this fund is well-resourced to manage the flexible mandate of this strategy. A strong and capable fixed-income team, a disciplined and risk-conscious investment process, and the stabilization of the firm following Navneet Munot joining as the chief investment officer lead us to assign the fund a Morningstar Analyst Rating of Bronze.
Dinesh Ahuja has been the lead portfolio manager of this fund since February 2011 and has total experience of around 20 years, with 12 years' experience in fixed-income fund management.
He comes across as a skilled and experienced manager and has helped the fund build an impressive track record during his tenure. We also draw comfort from the stability of the investment team and their long tenure at the helm.
The fund follows a disciplined and risk conscious investment process that draws extensively from the in-depth expertise of the investment team. Research is deeply rooted in the firm’s philosophy. The team’s understanding of the markets and frequent interaction with their equity team and parent company give them an edge in forming views on the business and creditworthiness of the companies.
The execution of the process has been above average due to active duration bets and investing primarily in high-quality credits. SBI Dynamic Bond Fund is among the few funds within the category that is dynamically managed and true to its mandate. Given its flexible mandate to move across the segment, the manager constructs the portfolio with primary focus on liquidity, and hence avoids taking credit bets. The duration of the fund varies from one to eight years.
The manager remains pragmatic and realigns the portfolio quickly as market conditions evolve—the stake in a single segment may even go up to 100% at times. This strategy has helped the fund deliver strong absolute and relative returns, outperforming the Morningstar Category and providing above-average returns over most periods. The fund’s flexibility to manage duration actively may give the strategy fuel to outperform, but it can also be a double-edged sword.
IDFC Dynamic Bond
- Star Rating: 4 stars
- Analyst Rating: Silver
- Date of Analysis: May 2018
- Morningstar Analyst: Himanshu Srivastava
- Credit Quality: High
- Interest Rate Sensitivity: Limited
IDFC Dynamic Bond Fund’s advantages include the tenacity of its competent lead manager Suyash Choudhary and a strong process that draws on the firm's robust macroeconomic and fundamental research. It is these elements that makes it tough not to have conviction in this fund despite its recent underperformance.
Pleasingly, the fund is not changing under the Securities and Exchange Board of India’s new guidelines on fund categorisation. Hence, its core philosophy of dynamically tracking interest rate movements remains intact. 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 ability to 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. 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 doesn’t 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 and penchant for taking contra calls may not always work. The fund’s underperformance in 2015 is a case in point. Likewise, Choudhary’s fundamental-driven and long-term approach did not yield the desired results last year as the market reacted differently from the way it should have fundamentally behaved.
Still, Choudhary is at home with his investment style. He adopts a relatively long-term approach to investing and, in the process, braces himself for short-term underperformance. We draw confidence from his presence at the helm and believe that his skills and research-driven approach should hold the fund in good stead going ahead. This is a solid option to effectively navigate interest-rate volatility.
IDFC Bond Fund – Long Term Plan
- Star Rating: 4 stars
- Analyst Rating: Bronze
- Date of Analysis: May 2018
- Morningstar Analyst: Himanshu Srivastava
- Credit Quality: High
- Interest Rate Sensitivity: Limited
Among fixed-income funds that are run with a duration strategy, this fund ranks as a worthy candidate. The fund has blossomed under Suyash Choudhary’s stewardship who took 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 ability to identify attractive investment opportunities across market segments.
The fund’s investment strategy would undergo some modifications to comply with the new Securities and Exchange Board of India guidelines on fund categorisation. Going ahead, it will be a part of the long-duration fund category, and, as per the category requirement, its duration will be maintained above 7.0 years. Subsequently, the fund has been rechristened as IDFC Bond Fund – Long Term Plan. Earlier, Choudhary had fluidly managed its duration based on his view of the interest-rate scenario. To that extent, the fund’s new positioning could be a limiting factor for the manager as he is at his best when given a free hand. However, there is no upper cap on duration for the funds from this category. Hence, the mainstay of the investment strategy will continue to be duration bets, with the level playing ground available to all funds from the category. Also, Choudhary’s expertise in running active duration mandates would provide this fund an edge over peers.
Within the defined framework, Choudhary would continue to manage the fund with his trademark investment style, which involves taking active duration calls, investing in a free-flowing manner, and taking contrarian calls if the risk/reward is favourable. The strategy is not without risk. For instance, the strategy of freely moving across the yield curve and penchant for taking contra calls may not always work. Likewise, Choudhary’s fundamental-driven and long-term approach did not yield the desired results last year as the market reacted differently from the way it should have fundamentally behaved.
We draw confidence from Choudhary’s presence at the helm, which in our opinion is a big positive, but its high expense ratio is a cause for concern.
