In October 2015, Shobhit Mehrotra, who managed HDFC Medium Term Opportunities since its inception in December 2012, relinquished management responsibility and handed over to Anupam Joshi.
Joshi was initially with IDFC Mutual Fund as a portfolio manager since 2008 where he was responsible for managing funds from the liquid, ultrashort, and short-term categories. To that extent, he has the credentials to run this fund.
The fund's investment philosophy of optimising returns for investors without exposing them to excessive duration or credit risk stays consistent, though Joshi does bring his own style of investing here. For instance, the fund was earlier managed with an approach of holding the majority of investments until maturity, thus allowing a linear rolldown in its average maturity. Joshi, on the other hand, prefers managing the fund more actively.
The fund's mandate permits investment only in securities with maturities not exceeding 60 months. Therefore, its average maturity is typically maintained between 1.0 and 3.5 years.
Joshi seeks to add value through security selection, rather than making big adjustments to the fund's duration. Expectedly, the investment approach relies on fundamental research. It entails combining qualitative aspects with quantitative analysis. The fund company uses a proprietary model in which qualitative and quantitative inputs are used to arrive at a credit score for each issuer. This helps managers determine the exposure they can take to each issuer, thereby acting as a risk-management tool for the individual portfolio and the fund company as a whole. Here, the investment team lays more emphasis on risk control, thereby focusing on balancing safety, liquidity, and return. We think the investment process is thorough and that the manager and team are comfortable with it.
However, the fund's most appealing aspect is its low fee, which gives it an edge over the competition. As of March 2015, its total expense ratio was 0.28%, making it one of the most inexpensive offerings in the short-term bond Morningstar Category. The strategy has its limitations, though. In times when credit markets are buoyant, the fund may find it hard to match aggressive peers that are willing to go down the credit curve.
Mehrotra built a strong track record, but the fund hasn't done badly under Joshi. Having said that, we would like to evaluate him over some more time before building conviction in his capabilities.
Though this change at the helm mandates a downgrade in the fund's Morningstar Analyst Rating, its low-cost nature and straightforward investment approach still make it a compelling investment proposition and a worthy candidate for a positive rating.
Hence, for now, we change the fund's Analyst Rating to Bronze from Silver.
- Category: Short-term bond
- Fund manager: Anupam Joshi
- Analyst rating: Bronze
- Star rating: 5 stars
- Portfolio role: A bias toward higher-quality fare and papers issued by public sector undertakings. The manager does not believe in taking credit risk in this fund. Hence, AAA or equivalently rated securities typically account for over 90% of the portfolio.
- Process: It has a research-intensive approach that focuses on both qualitative and quantitative aspects. Joshi will build cash when there aren't attractive investment opportunities and ride out periods of volatility and uncertainty.
- Performance: The fund has developed a pleasing risk/reward profile.
- Expense ratio: The fund ranks among the most inexpensive offerings in the category.
