When we talk about investing in fixed income funds, Birla Sun Life Mutual Fund is a name that stands out given their expertise in this space. We reviewed the Birla Dynamic Bond Fund managed by Maneesh Danghi and the Birla Short Term fund managed by Prasad Dhonde and here’s a look at what we thought about them.
While the AMC follows a ‘house view’ in terms of their duration and credit calls, these are tweaked to match the individual fund’s mandates. The Dynamic and the Short Term fund have marked differences and fall under two separate categories. Yet they are both rated Silver based on Morningstar Analyst ratings.
While Maneesh’s expertise on the macro front, his ability to anticipate interest rate directional movements and his views on the various macro events resonate through the fund house, Prasad’s experience and expertise in managing funds and his ability to identify the right investments at the shorter end of the yield curve stand out.
The BSL Dynamic Bond 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 Dynamic fund is truly dynamic in nature and can go anywhere in terms of both duration and credit. Though allowed as part of its mandate, the fund does not tend to invest below AA rated papers. However, they held some exposure to these in 2012-2014 periods. The duration on the fund too has moved in the range of 6 months to 8.5 years in the past.
Between 2011 and 2015, this fund was being run with a very short modified duration and reflected the manager’s negative view on the interest rate cycle. However, it has since gradually moved up to around 8.5 years in April 2016, the highest in the fund’s history for this period. The fund has typically held a higher proportion of G-Sec’s as opposed to corporate bonds over the past 2 years. However, this can change significantly, given the nature of the fund.
Under Dhangi’s leadership (Sept 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. On a three- and five-year basis, the fund retained its first-quartile ranking, beating 93% and 97% of its category peers, respectively.
The fund’s expense ratio of 1.41% on the distributor mode is slightly lower than the category median. While this puts the fund’s expense ratio on par with its peers, the fund has been getting expensive over the years.
Our conviction on Maneesh’s ability to execute the strategy with success, his skill at being able to take the right interest rate directional calls, the depth of the processes at Birla, and he overall positive showing on the long term performance lead to a Morningstar Analyst rating of Silver on this fund.
BSL Short Term on the other hand takes a duration view based on the interest rate directional movements in addition to taking some credit bets in high quality corporate bonds at the shorter end of the yield curve.
This is the oldest fund in the Short Term Bond Fund category and was initially launched as an alternative to Fixed Maturity Plans’ with a view to give investors as well as managers increased flexibility. The fund can typically go up to 2 years and currently runs a modified duration in this range. However the fund can go down to about 7-8 months on the lower side which it did in 2012-13.
The fund invested only in money market instruments until 2010, post which Dhonde started investing in a combination of corporate bonds, G-Sec’s and SDL’s. However, the allocation between the three can change significantly based on their relative spreads. Exposures to G-Sec’s went up significantly since 2013, with the current allocation standing at around 30%. Although corporate bonds constitute a major proportion of the fund with the current exposure at over 50%, allocation has reduced from the 70% levels in 2013-14 periods.
Dhonde’s execution of the strategy is reflected in the fund’s noteworthy performance. The fund has remained a top quartile performer under his leadership since July 2011 and returned 9.46% (annualised) as compared to the category average of 8.90%, beating 94% of its peers.
The fund’s expense ratio of 0.32% is significantly lower than the category average of 0.95% and it features in the category’s first decile. This fund has consistently remained one of the cheapest since 2011 on a year on year basis.
Dhonde’s focus on ensuring that about 20% of the fund is allocated to lower than 1 year papers with a view to maintain liquidity, his in-depth understanding of his investor base; based on internal client profiling exercises, a fairly diversified portfolio, the fund’s positive showing on the performance front and lower expense ratios – all lead to a Silver rating on this fund.
