Birla Sun Life Dynamic Bond fund is truly dynamic in nature and can go anywhere in terms of both duration and credit. The fund’s focus lies in taking a combination of active-duration bets and credit calls to optimise portfolio returns.
Performance
Maneesh Dangi has been managing this fund since 2007, and his execution of the strategy is reflected in its noteworthy performance in both the long and short term. Under his reign (September 2007-May 2016), the fund returned 9.42% (annualised), as opposed to the intermediate bond Morningstar Category average of 7.52%, thus beating 97% of its peers and falling in the first quartile in terms of performance.
Credit research
Given that the fund can invest in sub-AA+ rated papers, the importance of credit research cannot be undermined. The fund house uses internal ratings as opposed to relying on external credit ratings. Any credit can be invested into, only after it makes a grade on the internal research process. Analysts evaluate the management, corporate governance practices, financial standing of the issuer, liquidity, and risk.
Though the fund refrains from investing below AA rated papers, it held some exposure to these in 2012-14.
G-secs
The fund has typically held a higher proportion of government securities as opposed to corporate bonds over the past two years. However, this can change significantly, given the nature of the fund.
The manager runs a concentrated approach, with exposures to a single long-term government security paper going up to about 60% of the fund, and can also tend to switch papers based on its liquidity.
While government securities are considered fairly liquid, the team’s ability to track their tradability could have significant impact on the fund. Further, the high levels of concentration in a single paper could pose a risk.
Duration
Given that duration is an integral part of the strategy, studying the macroeconomic scenario and taking interest rate directional views form the broader framework of the process. The fixed-income team tracks headline indicators and follows a market-linked strategy as opposed to a pure macro-based strategy. They record their expectations as well as the outlook versus the outcome around every macro event.
The duration on the fund has moved in the range of six months to 8.5 years. Dangi has been managing duration very well on this fund and has the wherewithal to deliver above average performance over longer time frames.
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