SBI Dynamic Bond
A risk-aware yet flexible investment mandate has led to the fund’s decent showing across market cycles.
- Interest Rate Sensitivity: Moderate
- Credit Quality: High
- Star Rating: 3 stars
- Analyst Rating: Bronze
- Analyst: Nehal Meshram
- Date of Analysis: April 2018
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.
Reliance Dynamic Bond
An experienced team with well executed strategy through proactive duration management adds to the fund’s appeal.
- Interest Rate Sensitivity: Moderate
- Credit Quality: High
- Star Rating: 4 stars
- Analyst Rating: Bronze
- Analyst: Nehal Meshram
- Date of Analysis: December 2017
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. Pimple has demonstrated considerable skill in executing this strategy and hence we have retained the fund’s Morningstar Analyst Rating at Bronze.
Aditya Birla Sun Life Dynamic Bond
A truly dynamic fund with a capable manager at the helm.
- Interest Rate Sensitivity: Moderate
- Credit Quality: Medium
- Star Rating: 4 stars
- Analyst Rating: Silver
- Analyst: Kavitha Krishnan
- Date of Analysis: October 2017
Maneesh Dangi has been running Aditya BSL Dynamic Bond 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. He is supported by a strong fixed-income team of 12 analysts, including four portfolio managers whose expertise lies across various segments of the fixed-income market.
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 in Dangi's ability to execute this strategy with finesse and impressive long-term performance leads us to reiterate a Morningstar Analyst Rating of Silver.
UTI Dynamic Bond
A dynamic strategy that is helmed by a skilled and experienced manager.
- Interest Rate Sensitivity: Moderate
- Credit Quality: High
- Star Rating: 5 stars
- Analyst Rating: Bronze
- Analyst: Kavitha Krishnan
- Date of Analysis: October 2017
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.
Portfolio manager Amandeep Singh Chopra has over 22 years of experience with UTI and has worked across various functions within the AMC. He heads the fixed-income desk at UTI and has been managing this fund since 2012. Amandeep is supported by two other portfolio managers with an average experience of around 9 years at UTI. The three decision-makers are supported by a team of two credit analysts and an economist.
While we have conviction in the manager 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 on the processes at the AMC, the stability and the experience that Amandeep Singh Chopra brings, and the consistency in the fund’s performance lead us to assign a Morningstar Analyst Rating of Bronze on this strategy.
