Video Center

 

A true-blue dynamic bond fund

Senior Analyst Kavitha Krishnan points to a combination of factors as to why Birla Sun Life Dynamic Bond Fund stands out within its category.

Larissa Fernand: Welcome to Morningstar. I'm Larissa Fernand, the Editor. Joining me today is Kavitha Krishnan, a Senior Fund Analyst on our team.

Hi, Kavitha.

Kavitha, you recently initiated coverage on Birla Sun Life Dynamic Bond Fund. So, could you tell us what led to the Silver rating?

Kavitha Krishnan: So, the fund has a really long history and has been managed by Maneesh Dangi since 2007. We have a really positive view on Maneesh Dangi and his abilities and skills in terms of taking the right interest rate directional calls. We view his understanding of the macros for both on the global as well as the local front as another positive.

The team at Birla has remained really stable over the past 5 to 10 years and we thought that the fixed income team at Birla follows a very detailed process both on the issuer selection as well as G-Sec side. The issuer selection process, for example, looks only at the internal ratings as opposed to looking at the external credit ratings. On the G-Sec front then analysts track trading volumes and open market operations quite closely while the duration calls are left to individual fund managers.

Overall, we think that the process holds the fund in really good stead and which is why we have awarded the fund with a Silver rating.

Fernand: You emphasized that the process is very well-defined and issuer selection is very detailed. Can you specifically talk on these two aspects?

Krishnan: That's right, Larissa. So, the company undertakes a 360-degree review of the issuers that they are looking at investing in. So they tend to conduct site visits. They meet the companies personally. They also undertake a thorough evaluation of the vendors, the companies' ability to meet their payment obligations and try to understand the fundamentals of the company as well. So this gives them a lot of advantage over what an external rating agency would do.

On the G-Sec side as well, they undertake a lot of research and track open market volumes quite closely. They also look at investing in highly liquid papers and document their views based on every event that they foresee. So, this again gives them a lot of advantage in terms of keeping a track of historical events and ensuring that their research process is on track.

Fernand: How would you explain the core strategy of the fund and with that strategy in mind, how does Dangi invests?

Krishnan: Sure. The core of this strategy is a combination of taking active duration bets and investing in high-quality credit papers. The fund is truly dynamic in nature as the name suggests and it can go anywhere in terms of both duration as well as credit. While the mandate allows the fund to invest in lower-rated debt papers, it typically doesn't do so with the exception of 2012 to 2014 periods when it held a few lower than AAA-rated papers as a part of their holdings.

So duration of the fund has moved quite dynamically between 6 months to 8.5 years. For example, between 2011 and 2015 the fund was running a relatively lower duration based on the manager's negative view of the interest rate cycle. However, in 2016, this has gone up to about 8.5 years which is one of the highest on a historical basis.

The fund also holds a higher exposure towards G-Secs as compared to corporate bonds on a historical basis. And these are some of the core characteristics that we have noticed on this fund.

Fernand: You earlier mentioned that the strategy is not without risk. So, could you now talk about the risk in some detail?

Krishnan: It does have a chair of risk, Larissa. Say, for example, if we look at the risk levels on the fund as measured by the standard deviation over a three-year period, it does run a slightly higher risk as compared to its peers. However, it does make up on the risk-adjusted return basis, but we are wary of the kind of relatively higher risks that the fund runs.

Another probable risk on the fund is also a slightly concentrated strategy that it currently runs. So it can take up to 60% exposure in a single G-Sec paper. Having said that, G-Secs are considered to be fairly liquid. However, the level of concentration in a single paper could pose a risk in terms of the tradability. Say, for example, in 2015, they bought into a 2045 G-Sec paper and have been increasing their exposure towards this paper going up to about 59%. So, this is something that we really want to keep eye on.

Fernand: How must this fund be positioned in an investor's portfolio?

Krishnan: So given these factors and given the fact that it takes a combination of duration and credit bets, it will be apt as a supporting investment in an investor's portfolio.

Fernand: Thank you, Kavitha.

Krishnan: Thanks Larissa.

Fernand: This is Larissa for Morningstar. Thank you for watching.

Video Archives

How Trump Could Impact Economic Growth
Slowdowns in trade and immigration could hold back the U.S., and infrastructure spending could boost GDP, but it's too early to make any major changes to our economic forecast, says Morningstar's Bob Johnson.
Our take on the oldest short-term bond fund
Senior analyst Kavitha Krishnan discusses various aspects of Birla Short Term Bond Fund and deep dives into the reasons for the assigned ‘Silver’ Rating.
Sustainability/ESG Landscape in India
Sivananth Ramachandran, Manager, New Product Development for Morningstar Indexes talks about the relevance of sustainability based investing in India, along with the factors that drive it.
Review of Morningstar India Sustainability Index
Sivananth Ramachandran, Manager, New Product Development for Morningstar Indexes talks about the methodology, portfolio composition of Morningstar India Sustainability Index, and the different ways it can be utilized by Indian investors.
What Gives an Index an Edge
An index should not only be representative of the style it's trying to capture, it should also be transparent and limit unnecessary turnover, says Morningstar's Alex Bryan.
A true-blue dynamic bond fund
Senior Analyst Kavitha Krishnan points to a combination of factors as to why Birla Sun Life Dynamic Bond Fund stands out within its category.
How to choose the right mid-cap fund
Picking a mid-cap fund is tough, given the divergent performance across funds and time periods. Director of fund research Kaustubh Belapurkar points to traits that make for a successful mid-cap manager and what investors should keep in mind.
How Morningstar arrives at the analyst ratings
Director of fund research Kaustubh Belapurkar gives a low-down on the qualitative ratings of Morningstar and how investors can use them when making investment decisions.
A flexi-cap fund worth investing in
Senior analyst Himanshu Srivastava on why Reliance Equity Opportunities Fund makes for a compelling long-term investment option and why it deserves a coveted ‘Silver’.
A unique fund with a contrarian bent
The portfolio of Reliance Vision has qualitative bent with a focus on a few meaningful sectors. Senior analyst Kavitha Krishnan looks at this unique portfolio and discusses the strategy in detail.
SBI Magnum Midcap Fund bags a Bronze
Though fund analyst Kavitha Krishnan is impressed with the investment process and disciplined approach, she would like to see the processes remain stable over a longer period of time.
A debt fund for risk-averse investors
The short-term space on the fixed income side is overcrowded. Senior analyst Himanshu Srivastava highlights the traits that differentiate HDFC High Interest – Short-Term Plan from the crowd.
Baidu Troubles Highlight Challenge of Investing in China
The Chinese search giant's run-in with regulators doesn't have a major impact on our view of the firm's valuation, but the incident emphasizes regulatory and stewardship risks.
For Women, Risk Is Something to Embrace
Earning less, a shorter career, and living longer should steer women toward riskier assets, Morningstar's Laura Lutton says.
What We Learned at Berkshire
Morningstar's Gregg Warren shares the insight he gained on Berkshire's capital spending and share buyback philosophy.
Why Moats Matter
An economic moat provides a gauge of a company's competitive advantages and overall strength, and it is a highly valuable tool for investors of all levels.
Reducing the Pain of Contrarian Investing
It isn’t easy being different, but having a disciplined valuation framework can help keep your emotions in check, says GMO’s James Montier.
Should Investors Care About Sustainability?
Investors who want to have an impact may wish to allocate their capital to companies and funds that are better sustainability performers, says Morningstar's Jon Hale.
How Can You Tell if a Fund Seeks Sustainable Investments?
Morningstar's Jon Hale walks through the nuts and bolts of calculating the new sustainability rating for funds.
Financial Literacy: Just-in-Time Is the Ticket
Financial-education efforts have had depressingly little impact on individuals' decision-making when occurring too far away from the financial behavior it's meant to influence, says University of Colorado's John Lynch.
Time to Rethink Saving and Spending in Retirement
Retirees today are breaking out of the traditional saving and spending models of the past, continuing to save in their retirement years, says Vanguard's Steve Utkus.
Why China Matters to the World Economy, and Why It Doesn't
A slowing China will have a profound impact, but it isn't the be-all and end-all to the health of the global economy, says Morningstar's Bob Johnson.
How Bad Timing Can Bite in Retirement
Starting withdrawals as a bear market hits can seriously impair the sustainability of a retirement portfolio over time.
How to Fine Tune Your Investment Mix in Retirement
In addition to moving from stocks to bonds, investors may also pivot away from more volatile intra-asset-class tilts as they move into retirement, says Morningstar's Christine Benz.
Four Pressing Topics From The Berkshire Meeting
Morningstar analyst Gregg Warren gives his take on Berkshire's culture, crisis management, and more from the annual meeting.
Buffett: Interest Rates Key to Understanding Stock Valuation
In our mid-meeting update, Morningstar's Matt Coffina discusses Buffett's view of stock valuations, cost cutting, and more.
Russia's Troubles Unlikely To Lead to Worldwide Contagion
The country's economy and currency are in precipitous decline, but the U.S. economy should provide an engine for global growth, says Morningstar's Bob Johnson.
How Much Can I Afford to Save, and How Far Will It Get Me?
Parents shouldn't compromise their own retirement plans to save for their children's college expenses, but they should establish guidelines with their children for how much they're prepared to spend.
How Much Luck in Investing Success?
Michael Mauboussin explains why humans tend to overweight the role of skill and underestimate the role of luck in investing success--and how we can correct for our perceptions.
A Risk-Conscious Approach in Frontier Markets
Because frontier markets are seen as risky, risk tends to get priced more dearly, and valuations look more appropriate for the type of risk you are taking, says Wasatch Frontier Emerging Markets Small Countries Fund manager Laura Geritz.
When Stocks Are Safer
Data show that the longer investors held stocks (and stomached short-term volatility), the safer they became for meeting portfolio objectives, says Morningstar's David Blanchett.
Perks and Problems With the New myRA
These accounts have benefits for savers who are just getting going, but most will need a bigger toolkit for retirement, says Morningstar's Christine Benz.
Rethinking Risk Tolerance
Beyond their ability to stomach short-term volatility, investors should define their risk tolerance in terms of their actual risk capacity and the probability of hitting their retirement goals, says Morningstar's Christine Benz.
Getting Your Arms Around Risk
Fund investors should think beyond volatility measures alone when sizing up the risk in their portfolios, says Morningstar's Shannon Zimmerman.
Three Main Variables in the Retirement Cost Equation
New research from Morningstar Investment Management examines the key factors that drive income replacement rates, trends in retirement spending, and the duration of retirement.
Greenblatt: Patience - the Secret to Value Investing
Value investing works like clockwork, but your clock has to be really slow, says the Columbia professor and CIO of Gotham Asset Management.
Mutual Fund Tools
Feedback