ANZ Grindlays Super Saver Income Fund guards assets

Aabhas Pandya

ANZ Grindlays Super Saver Income Fund has been able to guard its assets in a turbulent debt market with the fund going open-ended on August 22 at the sale price of Rs 10. The fund has a current net asset value of Rs 10.01 (August 29). The maiden fund from ANZ Grindlays Mutual Fund had closed for initial offer in July with a mobilisation of Rs 2.58 billion.

ANZ Super Saver has adopted a defensive investment strategy with an average maturity profile of only 1.27 years with around 39 per cent of the corpus in cash and money markets. The fund also holds over 40 per cent of its assets in corporate bonds and debentures while exposure to government securities is only around 18 per cent, concentrated at the short-end of the maturity curve.

The fund was fortunate with the timing of the launch, which came when the bearish undertone had already set in the debt markets, with interest rates beginning to harden up. When interest rates move up, bond prices move down. Had the fund been already invested, it would have suffered erosion in net asset value like its peers in the medium-term debt category. However, despite the sharp drop in prices of bonds and government securities (leading to attractive yields), the fund manager continues to tread cautiously with his investments.

"We do not want to open up the portfolio to the volatility of government securities and hence, have limited our exposure to 2001 and 2002 papers only. This is because the gilt prices are closely tracking the rupee where any change by 5 paise (Rs 0.05) leads to a 20-30 paise change in gilt prices. However, we are trying to build the portfolio duration through corporate paper," says Rajiv Anand, fund manager, ANZ Grindlays Super Saver Income Fund. "On the corporate side, our emphasis is to invest in good quality paper with one to three year maturity. We have also invested in a few good quality five-year papers, where the sellers have been desperate to offload, thus giving us a good yield," he adds.

The portfolio is certainly of high credit quality with 94.24 per cent of the assets in AAA instruments. The fund has also taken a marginal exposure to AA and AA+ debt instruments. However, the actual portfolio quality will be discernible only after the fund invests its 40 per cent cash component.

Anand believes that a hike in interest rates was on the cards. "The Reserve Bank of India had been emphasizing that while the US Federal Reserve is hiking interest rates, we were dropping rates in April. Hence, the July 21 measure was aimed at reinstating the parity. However, the Fed has left interest rates unchanged yesterday, which is good news for the markets," he says.

Going forward, Anand is bearish on the interest rate outlook, primarily due to two factors. "One, there has been a sharp reduction in foreign capital inflows compared to last year. The high inflows had lead to an increase in money supply, thereby leading to lower interest rates. Two, the government's large borrowing programme continues to worry the market," he says.

The fund manager employs a 3-D approach to arrive at investment decisions. "The factors that drive interest rates have been broken into three broad categories - economic fundamentals, market psychology and market valuations. A weekly checklist assigns a bullish or bearish assessment to the factors that drive the direction of interest rates. The overall assessment of the various factors translates into a duration in months, around which the portfolio is constructed," elaborates Anand. "In fact, the 3-D factor process had turned bearish in April, pointing to hardening of interest rates," he adds.

The fund manager is of the opinion that the hike in interest rates by 100 basis points is not going to impact corporate recovery. "Yes, prime lending rates of banks have gone up but it must be recalled that the economy was growing the fastest three-four years ago when interest rates were high." This is indeed a contrarian approach to the general belief that a hike in interest rates will nip the corporate recovery in the bud.

Source: Value Research

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