HDFC High Interest Fund - Short Term Plan Growth benefits from the presence of a seasoned manager in Shobhit Mehrotra and his investment style, which focuses on keeping risks at bay.
Mehrotra’s investment approach is reasonably simple and straightforward with an emphasis on safety and liquidity. He primarily invests in higher-quality fare and papers issued by strong and stable private sector companies, public sector undertakings, and government securities. Credit bets are taken albeit with a measured approach and only in high-conviction names. The focus is to not compromise on the fund’s risk profile.
There is more to the strategy than just safeguarding it from credit risk. The team conducts fundamental research, using both qualitative and quantitative parameters, to identify robust companies with suitable creditworthiness. A proprietary model assigns a credit score to each issuer, helping decide the exposure to each entity. Within the chosen investment universe, Mehrotra scouts for securities that offer attractive spreads.
Although taking active duration calls isn’t a major part of the strategy, Mehrotra in the recent past has increased the fund’s maturity in line with his view on interest rates. For instance, since early 2015, the fund’s average maturity has hovered in the range of 4.0-6.0 years compared with 1.0-3.0 years earlier. During our interaction, Mehrotra maintained that the fund’s current positioning is meant to capitalise from the falling interest-rate scenario. Its maturity profile may move back to its earlier positioning if the team’s view on interest rates changes.
The fund’s strategy is not without risk. Its relatively high maturity profile exposes it to a higher interest-rate risk than a typical category peer. This can be seen in the fund’s muted performance in the years 2013 and 2015.
Having said this, we believe it is a convincing product that scores thanks to its experienced team and robust investment process. Another advantage is that it is a fund company that watches out for investors.
It therefore offers enough reasons for us to re-assign a Morningstar Analyst Rating of Silver.
