Morningstar Analysts assign Gold, Silver, Bronze, Neutral, and Negative, after taking into account three pillars: People, Process and Parent. The highest ratings going to funds the analysts’ research leads them to conclude will outperform over a market cycle, and Neutral and Negative ratings to those they lack conviction in. Read the detailed methodology here.
Here are funds that were downgraded by our analysts in 2021.
DEBT FUNDS
IDFC Bond Fund – Medium Term Plan
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Category: Medium Duration
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Star Rating: 4 stars
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Fund Manager: Suyash Choudhary (September 2015)
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Analyst Rating: Regular plan downgraded from Bronze to Neutral. Direct share class retains silver.
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Morningstar Analyst: Himanshu Srivastava
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Report: August 2021
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Return: 26% (2018), 9.13% (2019), 10.94% (2020), 7.46% (Since inception return as of December 27, 2021)
Analyst View
Safety, liquidity, and fundamental research are the hallmarks of the strategy plied here. The strategy is structured in a way to ensure that investors are not exposed to unwarranted risks. The fund is a part of the medium-duration category, where the investment mandate is to maintain the fund’s Macaulay duration between three and four years. Additionally, investments are made only in AAA rated and highly liquid corporate bonds or government securities. Hence, neither the credit nor active duration bets are part of the investment approach.
IDFC Dynamic Bond Fund
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Category: Dynamic Bond
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Star Rating: 5 stars
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Fund Manager: Suyash Choudhary (October 2010)
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Analyst Rating: Regular plan downgraded from Bronze to Neutral. Direct share class retains silver.
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Morningstar Analyst: Himanshu Srivastava
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Report: November 2021
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Return: 80% (2018), 10.98% (2019), 12.95% (2020), 8.16% (Since inception return as of December 24, 2021)
Analyst View
Given duration is an integral part of this strategy, studying the macroeconomic scenario for taking an interest-rate directional view forms the broader framework of the process. The interest-rate direction is determined analyzing various influencing factors such as growth versus inflation, fiscal and current account deficit, private sector and government borrowings, fiscal and monetary policy view, money supply, currency market movement, and global interest-rate scenarios among others. This is complemented by an overlay of technical factors where the team examines the demand/supply dynamics to get clarity on valuations and the direction of the yield curve. Subsequently, interest-rate direction calls and anticipation of yield curve movement forms the basis of portfolio positioning in duration terms.
Nippon India Low Duration
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Category: Low Duration
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Star Rating: 5 stars
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Fund Manager: Anju Chhajer (October 2009), Kinjal Desai (May 2018), Vivek Sharma (February 2020)
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Analyst Rating: Downgraded from Silver to Bronze (Direct Plan). Neutral, unchanged (Regular Plan)
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Morningstar Analyst: Nehal Meshram
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Return: 39% (2018), 6.99% (2019), 7.28% (2020), 7.76% (Since inception as of December 24, 2021)
Analyst View
An experienced manager, employing an established process to maintain a highly liquid portfolio, makes Nippon India Low Duration an attractive choice for investors. The strategy’s direct share class earns a Morningstar Analyst Rating of Bronze, while its more expensive regular share class is rated Neutral.
The strategy focuses mainly on fundamental research. The manager’s overall emphasis is on building the portfolio with safety and liquidity, achieved through a disciplined risk-controlled investment process.
Nippon India Dynamic Bond Fund
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Category: Dynamic Bond
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Star Rating: 4 stars
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Fund Manager: Kinjal Desai (May 2018), Vivek Sharma (June 2020), Pranay Sinha (March 2021)
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Analyst Rating: Downgraded from Bronze to Neutral (Regular Plan). Downgraded from Silver to Neutral (Direct Plan). People and Process pillar downgraded from Above Average to Average in both share classes.
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Morningstar Analyst: Nehal Meshram
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Return: 74% (2018), 8.44% (2019), 11.34% (2020), 6.62% (Since inception as of December 24, 2021)
Analyst View
The process is research-based with an overlay of active trading executed through government securities. The flexible portfolio-construction processes enable the manager to generate the optimal blend of securities. With this approach, the manager takes opportunistic bets on government securities to increase the duration, and to provide liquidity he takes higher exposure in money market instruments. He also runs a quality portfolio and invests only in government securities and AAA corporate bonds.
Nippon India Short Term
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Category: Short Duration
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Star Rating: 5 stars
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Fund Manager: Kinjal Desai (May 2018), Vivek Sharma (February 2020), Sushil Budhia (March 2021)
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Analyst Rating: Downgraded from Silver to Bronze in Direct share class. Unchanged (Neutral) for regular share class. People pillar downgraded from Above Average to Average in both share classes.
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Morningstar Analyst: Nehal Meshram
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Return: 51% (2018), 9.35% (2019), 9.48% (2020), 7.88% (Since inception as of December 24, 2021)
Analyst View
With Nippon’s vast experience in the international market, the management team has been working over the past two years and has further enhanced the process. It has taken incremental measures to ensure adherence to its investment mandate. The firm has predefined templates for the duration and credit risk that funds can take based on their mandate. These ranges become the boundaries within which a manager operates. Periodic reviews are done based on the quality of the credit to determine whether a change in position is required.
Nippon India Gilt Securities
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Category: Government Bond
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Star Rating: 5 stars
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Fund Manager: Pranay Sinha (March 2021)
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Analyst Rating: Downgraded from Bronze to Neutral. People pillar downgraded from Above Average to Average in both share classes.
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Morningstar Analyst: Nehal Meshram
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Return: 01% (2018), 12.37% (2019), 11.22% (2020), 8.80% (Since inception as of December 24, 2021)
Analyst View
The investment process is designed to generate excess returns by focusing on duration-management and yield-curve positioning. The investment strategy is research-intensive and relies mainly on fundamental research. The call on duration is taken by studying the macroeconomic scenario. The investment team also incorporates the views of key economists and in-house economists on factors such as gross domestic product growth, inflation, fiscal deficit, and trends in government borrowing, which are important for managing this fund.
In a bid to attain the best possible yield, the manager takes tactical calls using short-term influencing factors such as liquidity conditions in the market, inflation, money supply, market sentiments, trader positions, open market operations by the Reserve Bank of India, auction/issuance of securities, and monetary factors.
SBI Magnum Income Fund
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Category: Medium to Long Duration
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Star Rating: 5 stars
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Fund Manager: Dinesh Ahuja (January 2011)
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Analyst Rating: Downgraded from Siler to Bronze in direct share class
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Morningstar Analyst: Nehal Meshram
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Return: 74% (2018), 11.72% (2019), 11.63% (2020), 7.79% (Since inception as of December 2024)
Analyst View
The strategy's focus is to provide stable returns across the market cycle; therefore, the emphasis is mainly on stability by having higher accrual in the portfolio. It employs a bottom-up approach combined with a top-down overlay to generate superior risk-adjusted returns. A top-down approach guides portfolio position around predetermined risk parameters by assessing gross domestic product/inflation, monetary/fiscal policy, interest rate, liquidity, yield curve, credit spread, and so on, while the intensive bottom-up credit research uses an in-house model for security selection.
Aditya BSL Corporate Bond Fund
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Category: Corporate Bond
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Star Rating: 5 stars
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Fund Manager: Kaustubh Gupta (April 2021)
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Analyst Rating: Downgraded from Siler to Bronze in direct share classes. Downgraded from Silver to Neutral in regular share class. People pillar downgraded from Above Average to Average.
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Morningstar Analyst: Kavitha Krishnan
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Return: 7% (2018), 9.60% (2019), 11.89% (2020), 9.21% (Since inception as of December 24, 2021)
Analyst View
The core of the strategy lies in investing in high-quality corporate bonds across the yield curve. The manager also takes a duration view based on the interest-rate directional movements. In line with its philosophy, the strategy allocates a portion of its assets (currently around 18%) to government securities and state development loans in addition to investing in AAA/AA-rated debt papers. Kaustubh Gupta can vary his allocation towards these based on their valuations and relative spreads, keeping in line with the fund’s mandate.
Aditya BSL Dynamic Bond
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Category: Dynamic Bond
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Star Rating: 3 stars
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Fund Manager: Bhupesh Bameta (Aug 2020), Mohit Sharma (March 2021)
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Analyst Rating: Downgraded from Silver to Neutral in both share classes. People pillar downgraded from High to Average.
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Morningstar Analyst: Kavitha Krishnan
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Return: 66% (2018), -0.86% (2019), 9.73% (2020), 7.69% (Since inception as of December 24, 2021)
Analyst View
The Aditya BSL Dynamic Bond fund is an aggressive strategy that can invest in lower-rated papers to generate additional alpha. The investment strategy lays a lot of emphasis on underwriting issuers with strong covenants and applies an internal in-depth research process to evaluate individual issuers.
The fund’s focus lies in taking a combination of active duration bets and credit calls to optimise portfolio returns. 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. At the same time, given that the fund can invest in sub-AA rated papers; the importance of credit research cannot be undermined.
EQUITY FUNDS
Nippon India Tax Saver
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Category: ELSS
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Investment Style: Large Blend
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Equity Holdings: 55
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% assets in top 10 holdings: 51
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Star Rating: 1 star
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Fund Manager: Kinjal Desai (May 2018), Ashutosh Bhargava (July 2020), Rupesh Patel (July 2021), Sanjay Parekh (January 2021)
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Analyst Rating: Downgraded from Bronze to Neutral in both share classes. People pillar downgraded from Positive to Average.
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Morningstar Analyst: Kavitha Krishnan
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Return: -20.68% (2018), 1.49% (2019), -0.45% (2020), 13.16% (since inception as of December 24, 201)
Analyst View
Sanjay Parikh plies a growth-at-a-reasonable-price strategy and looks at investing in companies with strong and sustainable business models. He will be flexible with valuations, though, and pay what he thinks is a fair price, given the company’s growth prospects. A few fast-moving consumer goods feature in the portfolio based on this approach. He tends to take a two- to three-year view on stocks and focuses on factors such as returns on equity and returns of capital employed when evaluating companies.
The team has made multiple changes in process with a view to bring in stronger risk-management measures and create a portfolio better suited for the current markets. Parikh’s goal differs from that of the fund’s erstwhile manager, with a goal of beating the benchmark. His approach to investing leads to a portfolio construct that is representative of some part of the benchmark.
HDFC Flexi Cap
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Category: Flexi Cap
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Investment Style: Large Value
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Equity Holdings: 53
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% assets in top 10 holdings: 52
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Star Rating: 2 stars
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Fund Manager: Prashant Jain (June 2003), Sankalp Baid (January 2021)
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Analyst Rating: Regular share class downgraded from Silver to Bronze. Direct share class retains Silver.
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Report: August 2021
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Morningstar Analyst: Himanshu Srivastava
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Return: -3.53% (2018), 6.83% (2019), 6.44% (2020), 18.42% (Since inception as of December 24, 2021)
Analyst View
The process is robust with research at its core. Prashant Jain adopts a hands-on approach to research, to get an in-depth understanding of the business and ferret out companies with robust business models, clean balance sheets and competitive strengths. Though the bottom-up style is clearly integral to Jain's investment style, the top-down isn't ignored either. Both relative and absolute valuation methods are used to pick stocks. The investment style can be broadly described as growth at a reasonable price. Though Jain is mindful of the benchmark index weights here, he is not benchmark aligned. Hence, he doesn't shy away from taking underweight/overweight positions at sector or stock level when he spots opportunities.
Sundaram Mid Cap
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Category: Mid Cap
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Investment Style: Large Growth
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Equity Holdings: 64
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% assets in top 10 holdings: 28
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Star Rating: 2 stars
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Fund Manager: Bharath (February 2021), Ratish Varier (February 2021)
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Analyst Rating: Downgraded from Bronze to Neutral in both share classes. Process pillar downgraded from Positive to Average.
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Morningstar Analyst: Kavitha Krishnan
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Return: -15.41% (2018), -0.30% (2019), 11.79% (2020), 24.40% (Since inception as of December 24, 2021)
Analyst View
The fund stayed true to its mandate and has a higher exposure to mid-cap stocks than its category peers. The fund’s long-term orientation and the manager’s style of investing in high-conviction stocks could lead to a differentiated portfolio compared with peers and the index. This could, in turn, lead to a divergent performance profile compared with the competition and index. Having said that, the investment process should hold the fund in good stead. For now we think it’s prudent to evaluate the changes on the team and monitor how these changes pan out over the long term.
UTI Value Opportunities Fund
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Category: Value
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Investment Style: Large Growth
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Equity Holdings: 60
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% assets in top 10 holdings: 46
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Star Rating: 4 stars
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Fund Manager: Vetri Subramaniam (February 2017), Amit Premchandani (February 2018)
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Analyst Rating: Downgraded from Bronze to Neutral in regular share class. People pillar downgraded from Above Average to Average.
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Morningstar Analyst: Nehal Meshram
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Return: -2.44% (2018), 10.40% (2019), 19.02% (2020), 14.85% (Since inception as of December 24, 2021)
Analyst View
The manager mixes top-down and bottom-up approaches. The robust investment process favours sectors that have a strong probability of surprising positively on both earnings and operating cash flow growth. While analysing stocks, he follows a barbell strategy and invests in growth companies--even at a premium, if he thinks the valuations are justified and the company has the potential to generate economic value through the cycle. He pays heed to the relative valuations and looks for potential for mean reversion, focusing mainly on depressed stocks with low return of capital employed and return on equity.
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