Reliance Hybrid Bond Fund

Transcription

1 Reliance Hybrid Bond Fund (Formerly Reliance Monthly Income Plan) Fund Positioning: Source: ACE MF/Industry Data Reliance Hybrid Bond Fund is an accrual fund with the potential for alpha generation through equity. Current Investment Strategy: Debt: Investment into well researched credits primarily in AA & below rated papers (Max allocation to below AA rated papers including unrated securities can be 70% of the Fixed Income allocation) Duration: years. The Fund aims to follow accrual strategy with moderate MTM volatility.

2 Equity: Investment will aim to replicate Nifty 50 with a long term view Endeavor is to remain invested upto 10% in equities with minimal allocation to cash and cash equivalents 90% Accrual 10% Nifty 50 Reliance Hybrid Bond Fund The Fund offers Stability of debt and power of equity. Why 90% Accrual + 10% Nifty 50? The fund strategy is well suited in the current volatile market scenario as the main source of returns will be accrual and the portfolio will not be exposed to the duration volatility. The current debt market scenario offers opportunities to pick the best of issuers, structure and yield because of the below mentioned reasons: a) Banking System: Banks are vacating the lending space to capital markets due to inadequate capitalisation. Also, there is a lack of specific customized credit funding to meet business needs. There are limitations on bank lending due to sector specific stresses and end use restrictions. b) Corporate Bond Market: Bond Market demand is currently dominated in the high grade space. There is a large mass of quality issuers in the AA to BBB space who are vying for funds and diverse issuer set is approaching capital markets for the first time. Nifty 50 stocks are the market leaders and have established business model and track record across cycles. They have sustainable free cash flows and high ROEs. This strategy has generated better returns across the market cycles. (Please refer to Annexure for back testing of results) Suitability: The fund is ideal for predominantly fixed income investors with a marginal appetite for equity risk. The investment horizon should be 3 years or more so that the long term benefit of having a marginal exposure to equity pays off.

3 Fund Strategy: 1. The current debt positioning is varying duration based whereas the proposed strategy will run a neutral duration strategy ( years). 2. The current debt positioning is a mix of duration & accrual, while the proposed positioning will mainly be accrual with major exposure into AA & below rated papers. The equity proportion will be 10% to have distinct positioning vs other hybrid funds - RMF- The Credit Differentiator! We have a 9 member dedicated Credit Research Team which is one of the largest in the industry. This is a separate team within the Fund Management department that undertakes issuer appraisal and monitoring activities from a credit risk perspective. The Credit Research Team has parallel reporting to the CIO- Fixed Income and the Investment Committee. Credit Philosophy and Approach Philosophy Credit first, yield later No negative sectors. Identify strong credit profile while remaining sector agnostic. Forward looking and Through The Cycle view to predict rating migration Manage concentration risk (Issuer/Group/Sector) Tight transaction structure ensures robust credit profile of the instrument Periodic interaction with management and market feedback Closely follow new sectors/instruments/structure to gain early mover advantage (Micro finance, CMBS, receivable discounting etc.) Approach Forward Looking Beyond Numbers Management Aspect Market Intelligence Holistic View- Weakest link Risk mitigation through structuring Plain Vanilla Bond / Structured transaction Independent in-house legal support

4 Annexure: 1. How Various Fixed Income Indices have performed in the past 10 years (Back testing covers a complete rate cycle) Source: ACE MF/NSE Observations: a. Accrual strategy has delivered better risk adjusted returns against other categories. b. Downside protection even in a raising interest rate scenario 2. Back testing: Equities have been a wealth creator in the long run Source : ACE MF 3. Back testing of the proposed strategy: The Strategy has delivered better returns with lower volatility Source: ACE MF/NSE* Over the last 10 years average 3 year rolling return is 9.06% with standard deviation of 1.60%. We have considered post expense returns for the purpose of working. Expense ratio has been assumed as 1.80%.

5 Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.