SBI DYNAMIC BOND FUND

Transcription

1 SBI DYNAMIC BOND FUND

2 This product is suitable for investors who are seeking: Investment in debt and money- market securities Regular income for medium term Low risk SBI Dynamic Bond Fund Disclaimer: Investors should consult their financial advisors if in doubt whether this product is suitable for them.

3 SBI Dynamic Bond Fund Features Actively managed fund with the flexibility to invest in overnight maturity papers to high duration papers, it may move across different asset types from money market to medium/long bonds and G-sec based on the fund manager s outlook Instruments Debt # Instruments including Government Securities and Corporate Debt Money Market Instruments % of Net Assets (Min Max.) Risk Profile 0-100% Medium 0-100% Low The Fund is best suited in volatile markets as it endeavours to capture the best of duration play, interest rate movements& credit spreads. The fund focuses on generating returns by way of market movements rather than through interest accrual Average maturity is dynamically managed based on interest rate view, inflation & credit risk # Debt Instruments may include securitized debt up to 40% of the net assets

4 SBI Dynamic Bond Fund Performance SBI Dynamic Bond Fund - Reg Plan - Growth Scheme Benchmark: - Crisil Composite Bond Fund Index Additional Benchmark: - Crisil 10 Yr Gilt Index to to to 2014 Since Inception 2015 to to to 2014 Since Inception Absolute Returns (%) CAGR Returns (%) PTP Returns (INR) SBI Dynamic Bond Fund ,653 Crisil Composite Bond Fund Index (Scheme Benchmark) ,850 Crisil 10 year Gilt Index (Additional Benchmark) ,109 Past performance may or may not be sustained in future. Returns (in %) other than since inception are absolute, calculated for growth option of regular plan and in INR are point-to-point (PTP) returns calculated on a standard investment of 10,000/-. Additional benchmark as prescribed by SEBI for long-term debt schemes is used for comparison purposes. Data as on September 30, 2016

5 SBI Dynamic Bond Fund Competitive Advantage Strategic Asset Allocation Short term corporate credit Short term Govt Bonds Long term Govt Bonds Long term Corporate Credit Change in systemic liquidity driven by factors such as credit deposit growth and currency in circulation. Policy rate actions. Change in systemic liquidity driven by factors such as credit deposit growth and currency in circulation. Policy rate actions. The issuance calendar of bills. Change in monetary stance. Assessment of fiscal situation. Shape of the yield curve. SLR holdings of banks. RBI's open market operations. Movement in commodity and forex markets. Spread reversion w.r.t medium term levels. Changes in relative attraction between offshore and domestic funding avenues. Appetite from insurance co s and PF's Movement in commodity and forex markets Tactical Asset Allocation Change in systemic liquidity driven by factors such as Supply issues for all segments News flow Global developments Market positioning

6 SBI Dynamic Bond Fund Competitive Advantage - Instances Strategic Asset Allocation Market analysis & call: (March 2012) With the commencement of borrowing by the government in the new financial year, government bonds were expected to underperform With demand for wholesale funds from banks & consequent year end tightness, money market rates were at elevated levels. 1 year CD s during March were at %. The short end corporate bonds (2-3 yrs.) at % levels were also fairly priced vis-à-vis G-Sec considering moderate supply pipeline. On account of above we invested 90% of our assets in 1 year CD and balance in the ST corporate bond segment. Yield on March 10, 2012: Securities 1 Year 2-3 Year 10 Year G Sec Corporate bonds CD 10.80% Yield on April 21, 2012: Securities 1 Year 2-3 Year 10 Year G Sec 8.22% 8.58% Corporate bonds 9.46% 9.35% CD 9.80% Source: SBIMF Internal Analysis & Bloomberg Past performance may or may not be sustained in future.

7 SBI Dynamic Bond Fund Competitive Advantage - Instances Tactical Asset Allocation Market analysis & call: (May- July 13) RBI policy guidance had stressed on external sector factors driving policy actions Weakening external sector variables had impacted Forex market trends, even as markets where anticipating additional policy cuts during this period The newly issued 10 year government bond yield which traded at 7.11% in end May closed at 8.17% on 31 st July post the RBI measures. Considering the broad concerns on Forex trends and remote possibility of rate cuts, we had reduced duration in the fund during this period. Modified duration of the fund Date Average Maturity- Yrs End May End June End July Past performance may or may not be sustained in future. Source: SBIMF Internal Analysis

8 SBI Dynamic Bond Fund Current Strategy Lower GDP growth Monsoon Deficit Chinese Yuan devaluation Fed Rate Hike uncertainty SDBF aims to build mid and long term expectations on rate trajectory We continue to maintain duration in the fund keeping in mind the lower trajectory of inflation in the months ahead which could lead to expectations of further rate cuts by RBI. The average maturity of the fund stands at 9.83 years. Impact of Forex flows Effects of Geopolitical Events SDBF aims to actively react to tactical opportunities in the market

9 India Rates Snapshot for October 2016 Aug-16 Sep-16 Oct-16 Change YTD (in bps) 1 Yr. T-Bill M T-Bill year GSec M CD*** M CD*** Yr Corp Bond* Yr Corp Bond* Yr Corp Bond* Yr IRS Yr IRS Overnight MIBOR Rate INR/USD # Crude Oil Indian Basket** # Indian bond yields have softened massively with 10-year G-sec trading at 6.79% as of September end and down another 11bps at 6.68% as of 10 th November. The withdrawal of the high denomination notes as legal tender could lead to large deposits of money at bank branches. Given the ceiling on withdrawal of cash at Rs4,000 and that of Rs10,000 through cheque at bank branches, the liquidity is likely to stay within the banking system in the short term. This augurs well for interest rates, besides boosting liquidity. Consequently, money-market rates, too, softened on the back of anticipation of improvement in liquidity. Source: Bloomberg, PPAC, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of the data are % Crude oil prices rose 9.1% over the month and 38% YTD. month end; *Corporate bond rate is for AAA rated bonds,*** Refers to PSU Banks CD rate; # INR and Oil price changes are Rupee continues to hover around levels against the US Dollar. % change YTD

10 Jun-05 Feb-06 Oct-06 Jun-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16 Oct-16 Rate Outlook RBI, on 4 th October, delivered its first monetary policy decision under governor Patel and newly-formed India s 6-member Monetary Policy Committee (MPC). The formation of MPC has been a landmark institutional reform and all the members unanimously voted for a rate cut. The Reserve Bank s repo rate cut of 25 bps was balanced by a rather less dovish statement on future inflation trajectory. The highlights of latest monetary policy was the change in stance on the timeframe to reach the 4% inflation target (March 2018 earlier) and the desired range for real rate. While the self-imposed glide path to 5% by Q has been retained, the journey thereafter seems to be mired with known and unknown upside risks to headline retail inflation. The desired range for real rates (3m/1 year T-bill rate minus inflation expectation) has been allowed to dip to 125bps from earlier bps as the central bank opined that neutral rate is dynamic and trending downwards globally Repo Rate (mth end, %) We expect inflation to fall to 4% by November before it starts to pickup again in last quarter. For FY17 as a whole, the CPI inflation is likely to average around 5%. That said, with shifting of the 4% goal posts and removing the rigidity in real rates, the central bank has kept the options open for itself to deliver more rate cuts in case the global and domestic growth situations warrant. Source: RBI, CSO, SBIFM Research

11 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Market Outlook There has been a subtle shift in the direction of global bond yields over the last month with markets doubting the incremental effectiveness of additional QE/Monetary easing measures on aggregate demand. With the election results in the US, there has been a further rise in treasury yields, increase in long term market implied inflation expectations and curve steepening. The recent demonetisation of high value notes can have major mediumlong term positive structural effects such as: a) potential additional government tax revenues from better compliance over the coming years, b) increase in tax/gdp ratios seen in conjunction with GST and c) reducing the role of cash economy and additional access to formal financial sector. Also potential short term gains arising from a) possible one-time gains to government from FY18 arising from cancellation of illegal high value notes which may impact next year borrowings, b) slowdown in discretionary consumption and its cumulative impact on demand and inflation and, c) improvement in banking liquidity as currency partially returns to the system. Weak near term credit demand can support bonds, until the working capital demand shifts to banking channels from the cash based channel. While fiscal situation can improve significantly over medium term, the market can also take comfort from near term weakness in headline CPI. In this environment, the trend for a medium term easing in market yields remains intact driven by incremental news flow on potential benefits to government revenues over the medium term. In the very short term, global yield volatility, shifting expectations of US Fed stance and lack of OMO s /higher net supply can provide 2 way movement in bond yields Average spread between G-sec and Repo in last 10 years: 75bps 10 year GSec yield (mth end, %) Repo Rate (mth end, %) Source: RBI, Bloomberg, SBIFM Research

12 Investment Process Top Down Analysis Investment Objective & Internal Guidelines Duration Quantitative Analysis Sector Credit Yield Curve Trading Portfolio Construction Bottom Up Security Selection Risk Management The portfolio construction process is a combination of top-down analysis and bottom up security selection done within the framework of internal risk control system

13 Performance of other schemes managed by Mr. Dinesh Ahuja Managing since January, 2011 SBI Magnum Gilt Fund - Short Term - Growth 2015 to 30- Sep to 2015 Absolute Returns (%) 2013 to 2014 Since Inception CAGR Returns (%) PTP Returns (INR) ,822 Managing since January, 2011 SBI Magnum Gilt Fund - Long Term - Growth 2015 to to 30- Sep-2016 Sep-2015 Absolute Returns (%) 2013 to 2014 Since Inception CAGR Returns (%) PTP Returns (INR) ,031 I Sec Si-BEX* (Scheme Benchmark) N.A. N.A. I Sec Li-BEX* (Scheme Benchmark) N.A. N.A. Crisil 1 Year T-Bill Index (Additional benchmark) ,152 Crisil 10 Year Gilt Index (Additional benchmark) N.A. N.A. *Returns for scheme benchmark index Isec and SI-BEX is calculated using CRISIL Fund Analyser Managing since January, 2011 Magnum Income Fund 2015 to to 2015 Absolute Returns (%) 2013 to 2014 Since Inception CAGR Returns (%) PTP Returns (INR) ,194 Crisil Composite Bond Fund Index (Scheme Benchmark) N.A. N.A. Crisil 10 year Gilt Index (Additional benchmark) N.A. N.A. *Returns for scheme benchmark index I Sec and Li-BEX is calculated using CRISIL Fund Analyser Since Inception SBI Corporate Bond Fund 2015 to to 2015 Absolute Returns (%) 2013 to 2014 CAGR Returns (%) PTP Returns (INR) N.A Crisil Composite Bond Fund Index N.A Crisil 10 Yr Gilt Index N.A Past performance may or may not be sustained in the future. Returns (in %) other than since inception are absolute calculated for growth option and in INR are point-to-point (PTP) returns calculated on a standard investment of 10, 000/-. Additional benchmark as prescribed by SEBI for long-term and short-term debt schemes is used for comparison purposes only. Performance calculated for regular plan.

14 Biographies Mr. Navneet Munot - CIO Navneet Munot joined SBI Funds Management as Chief Investment Officer in December He brings with him over 15 years of rich experience in Financial Markets. In his previous assignment, he was the Executive Director & Head - multi - strategy boutique with Morgan Stanley Investment Management. Prior to joining Morgan Stanley Investment Management, he worked as the CIO - Fixed Income and Hybrid Funds at Birla Sun Life Asset Management Company Ltd. Navneet had been associated with the financial services business of the group for over 13 years and worked in various areas such as fixed income, equities and foreign exchange. Navneet is a postgraduate in Accountancy and Business Statistics and a qualified Chartered Accountant. He is also a Charter holder of the CFA Institute USA and CAIA Institute USA. He is also an FRM Charter holder of Global Association of Risk Professionals (GARP). Mr. Dinesh Ahuja Portfolio Manager Dinesh Ahuja joined SBIFM in Prior to joining SBIFM, Dinesh was a portfolio manager at L&T Asset Management and Reliance Group for four years. Dinesh started his career in 1998 as a fixed income dealer on the sell side. Thereafter he worked in leading broking outfits for eight years before moving on the buy side in Dinesh is a Commerce graduate and holds his Masters degree in Finance from Mumbai University.

15 Disclaimer Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This presentation is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included here constitute our view as of this date and are subject to change without notice. Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and take their own professional advice SBI Funds Management Private Limited (A joint venture between SBI and AMUNDI) Registered Office: 9th Floor, Crescenzo, C-38 & 39, G Block, Bandra Kurla Complex, Bandra (E), Mumbai Board line: Fax: Website Call: customer.delight@sbimf.com SMS: SBIMF to Visit Visit