L&T Short Term Income Fund (An Open Ended Income Scheme) April 2013

Transcription

1 L&T Short Term Income Fund (An Open Ended Income Scheme) April 2013

2 Content Economy Update Fixed Income - Investment Opportunities Current Fund Positioning

3 RBI Focus slowly shifting from inflation to growth RBI focus slowly shifting from inflation management to growth revival, however, the central bank has indicated that scope for further easing in immediate future is quite limited. However, slowing growth could stimulate further rate cuts over the next 6-12 months especially if RBI gets comfortable on inflation and CAD trajectory GDP forecast for FY12-13 has been revised downward by RBI from 5.8% to 5.5% y-o-y. FY13 Q3 GDP came in at 4.5% which is a decade low WPI Inflation came in at 6.84% in Feb-13 ; Global crude oil prices have come off recently, which is a positive for inflation and CAD Source: Bloomberg

4 Key Policy Rates and Yield Movement Rate 30-Mar Jun Sep Dec Mar- 13 Change Since Mar months CD bps 6 months CD bps 1 year CD bps 10 year G-sec bps Repo Rate bps RBI has cut repo rates thrice in the last one year, with a cumulative cut of 100 basis points. As a result, we have seen a downward shift in the yields in the last one year. However, overall yields still remain fairly attractive Source: Bloomberg.

5 Opportunities in the Short Term Segment Yields in the 3 month to 6 months have softened in the last one month However, yields in short to medium term corporate bond segment (1-5 years) are still quite high Corporate bonds spreads over g-sec have widened over the last few months in the short to medium term segment. In terms of risk reward, 1-3 year corporate bond segment looks most attractive Source: Bloomberg

6 Credits attractively priced Opportunities to take measured exposure to lower credits, as they are compensating adequately Source: Bloomberg

7 Why L&T Short Term Income Fund?

8 Positioned to take advantage of current investment opportunities in fixed income L&T Short Term Income Fund (LTSTIF) is predominantly invested into corporate bonds / NCDs Given the attractiveness of the corporate bonds in 1-3 year segment, the fund s portfolio has significant exposure (approx 58%) to this segment of the market Portfolio well positioned to benefit from attractive credit spreads with significant exposure to AA+ / AA/AA- rated papers and measured exposure to A rated instruments Focus on relative value strategies and owning highly diversified credits. The Fund seeks to take advantage of opportunities in the broader markets

9 Scenario Analysis six month period Fixed Income product with modified duration of 1.5 years Parallel shift in yield curve (bps) Yield accrual (annualized) (A) Capital appreciation / depreciation (annualized) on account of shift in yield curve (B) Total (annualized) (A+B) -100 bps 9.75% 3.00% 12.75% -50 bps 9.75% 1.50% 11.25% -25 bps 9.75% 0.75% 10.50% Unchanged 9.75% 0.00% 9.75% +25 bps 9.75% -0.75% 9.00% +50 bps 9.75% -1.50% 8.25% This is for Illustrative Purpose Only. Given the current market yields, it is assumed that a short duration bond fund having modified duration of 1.5 years with combination of securities across maturities / credits could generate gross yield of 9.75%. The above calculations are based on the assumption of parallel shift in yield curve and the actual capital appreciation / depreciation may vary depending on the actual change in the shape of the yield curve. Further it has been assumed that the securities will be held for six months. Expenses have not been considered. This if for illustrative purpose only and should not be construed as performance of the fund.

10 L&T Short Term Income Fund Investment strategy Product positioning Focus on generating returns through a yield oriented strategy with some potential to benefit through measured duration exposure. Exposures to lower rated credits, provided they compensate adequately Modified duration may go up to 3 years Investment in securities with residual maturity of up to 2 years : 65%-100% Investment in securities with residual maturity of more than 2 years but less than 5 years: 0%-35% Fund Manager: Shriram Ramanathan and Vikram Chopra Benchmark: CRISIL Short Term Bond Fund Index Product that could help in capitalizing on alpha generation opportunities through credit selection A steady yield oriented product that could fit into investors portfolio irrespective of market conditions Interest rate risk endeavored to be kept at low levels Exit Load : <=9 months 0.50%, otherwise Nil Ideal for relatively risk averse investors having investment horizon of at least 9 months to 1 year Potential to offer better post-tax risk adjusted returns in the current environment An income fund for your shorter term investment needs

11 Portfolio March 2013 Portfolio composition Money market instruments, 6.14% CBLO / Repo / Net receivables, 2.09% Govt securities 0.33% NCDs, 91.44% Rating Profile CBLO / Repo / Net receivables, 2.09% A 11.85% AA+/AA/AA % AAA/A1+/Sovereign 39.21% Portfolio Statistics Average Maturity Modified Duration 1.62 years 1.38 Years Portfolio YTM (%) 9.82% Fund Size (Rs Crs) 152 Source: Internal

12 Why L&T Mutual Fund for Fixed Income? Large and experienced fixed income team Well structured investment process and prudent risk management policies Team-based approach: Dedicated specialists across credit, trading and portfolio management Strong Internal credit research : which helps to identify opportunities / problems before market Large, yet differentiated product range to suit various investor needs

13 Fixed Income Investment Process : GEM Generation of ideas Evaluation of issuers Manufacturing and monitoring of Portfolios Diversified sources of ideas Views Top-down Bottom-up Types of Analysis Fundamental Macro Credit Market Technical Sources of Alpha Duration Credit / Issuer Security / curve Issuer Analysis based on Management contacts (company visits, conference calls) Annual reports Third-party research Proprietary company database Sector outlook Fundamental Credit Analysis Company Financials: Expected leverage and CF ratios Business & Environment: Market position, strategic focus and implementation, management track record, quality of disclosure and transparency Periodic rating review based on Management, business model, balance sheet & liquidity risk, earnings & cash flow risk, peer group analysis Implementation Discussion in Investment Committee Idiosyncratic risk diversified through limits at sector and issuer level Allocations to credit ratings, sectors, issuers done in accordance with risk tolerance and limits Exposures are regularly reviewed to ensure portfolio exposures are within investment guidelines Credit analysis is an integral part of the investment process

14 Credit 1- Mahindra Vehicle Manufacturers Limited Strong Parentage of Mahindra & Mahindra Ltd (CRISIL, ICRA AA+/Stable) 100% subsidiary. Close operational & managerial linkages with M&M Ltd. Strategically important for M&M Ltd for strengthening its foothold in domestic UV / LTV / CV segment. Few best selling vehicles of M&M Ltd (XUV 500, Scorpio pickup, Rexton, Maxximo, Quanto s engine, etc) manufactured by MVML. Regular financial support from M&M Ltd as & when required. M&M s commitment to keep MVML s gearing at controlled levels. Rapidly improving standalone financial metrics driven by robust growth in vehicle sales. Robust liquidity profile with almost negligible short term borrowings & negative working capital cycle. ICRA Rating AA / Stable. The aforesaid security may or may not form part of the portfolio of L&T Short Term Income Fund and the same should not be construed as investment advice.

15 Credit 2- Magma Fincorp Ltd Long track record in lending business (established in 1988). One of the leading NBFC with book size of Rs 14,000 cr+ and diversified lending business across products (CV/Car/CE/Tractor, SME none more than 30%) & across geographies (no state more than 11%). Track record of maintaining satisfactory asset quality across credit cycles. Improving funding mix with increasing proportion of long term funding sources. Better financial flexibility following 26% stake acquisition by KKR & IFC. Favorable regulation on securitization for NBFCs a credit positive for MFL. Stable financial metrics (adjusting for accounting adjustment on securitisation). CARE Rating AA+ / Stable. The aforesaid security may or may not form part of the portfolio of L&T Short Term Income Fund and the same should not be construed as investment advice.

16 Scheme Features Scheme Name Nature Investment Objective L&T Short Term Income Fund An Open Ended Income Scheme To generate reasonable returns primarily through investments in fixed income securities and money market instruments. There is no assurance that the objective of the Scheme will be realised and the Scheme does not assure or guarantee any returns. Inception Date December 04, 2010 Minimum Investment (First Purchase) Exit Load Benchmark Fund Manager Rs 10, % - if redeemed <= 9 months. Nil if redeemed > 9 months Crisil Short Term Bond Fund Index Shriram Ramanathan and Vikram Chopra

17 Disclaimer Disclaimer: This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. He/ She should also understand that any reference to the securities/ sectors / indices in the document is only for illustration purpose. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. CL00204 Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.