FORTIS FLEXI DEBT : GOING FORWARD
Kindly refer to my various notes on Fortis Flexi Debt which were published on my blog on July 29’2009, July 30’2009 & August 21’2009. We had recommended investment in the said scheme based on their past track record of posting absolute positive returns even in the worst of debt market scenarios (both in 2008 & 2009) when inflation had inched up drastically & even benchmark yields had inched up during those periods. Thanks to extremely dynamic & correct interest rate & duration calls taken by the Fund Manager during these times ; the said scheme outshone all their peers who were at the long end of the curve.
However, to err is human & that is exactly what happened over the past three months when some of the calls taken by the Fund Manager did not go according to his expectations & started posting negative returns over past 1/2/3 month horizons.
In the month of July I had given the Fund Manager’s strategy of capturing higher accruals in CP/CD & taking lower trading calls. However, as was expected, he did not get enough opportunities to capture higher accruals as the CP/CD rates remained more or less unchanged during these times. Also, some of his trading calls also went wrong to the extent that he had to cut his losses when interest rates jumped from 7.20% to 7.40% (July-Sep’09) (this was the time when most of the market participants were expecting interest rates to jump up to the range of 7.50% to 8% levels). However to everyone’s surprise, interest rates after touching a high of 7.50% started receding & even touched sub 7% for an intra day trade. Again, the Fund Manager could not participate in this unexpected rally & missed the boat.
Hence, the first priority of the Fund Manager was to recoup these losses, bring the scheme on the positive track & build from thereon to achieve the promised returns of 7.50% to 8% p.a. over six months from the date when we had last recommended the scheme. His efforts and strategy has paid off well as can be seen from the scheme performance as shown below . The said results are achieved by a) taking some accrual calls & b) by trading in a narrow band by investing in last auction & pre auction at 7.34% to 7.36% & unwinding at 7.30% to 7.27% levels:
Returns in Fortis Flexi Debt as on November 16’2009: ( % p.a.)
|
15 days |
30 days |
2 mths |
3 mths |
6 mths |
|
9.11 |
8.78 |
2.48 |
1.55 |
4.72 |
Going Forward:
Current portfolios will replicate the strategy which was supposed to be adopted in July of taking higher accrual call (current gross yields is at 6-6.25%) , lower duration (current average maturity is only 180 days) & limited trading calls (not more than 30% of the portfolio).
Though I have been advocating investment in the said scheme with 6-12 moonth investment horizon, I would like to stand corrected in stating that such schemes should be given a little longer investment horizon of 9-12 months (so that some of the wrong calls can get some breathing time to get corrected & turn positive over a period of time). Hence, I would recommend investors to have patience & confidence in the Fund Manager’s ability to deliver the promised returns over a period of time. If he has been able to deliver sterling performance even in the worst case scenarios, I have no doubt that he will turn up with similar performance going forward as well (if given support by holding onto the investments for the desired period instead of exiting prematurely).
Following portfolio allocation between G Secs/Corporate Bonds/Money Market etc will highlight the current strategy of the Fund Manager :
|
Month |
G-Sec |
Corporate Debt |
Money Market |
C/CE |
Total |
|
Jul-08 |
0 |
31.17 |
68.39 |
0.44 |
100 |
|
Aug-08 |
0 |
57.91 |
41.38 |
0.71 |
100 |
|
Sep-08 |
6.71 |
85.97 |
11.47 |
-4.14 |
100 |
|
Oct-08 |
13.87 |
86.36 |
3.07 |
-3.29 |
100 |
|
Nov-08 |
19.41 |
27.57 |
50.78 |
2.24 |
100 |
|
Dec-08 |
55.7 |
34.72 |
9.33 |
0.25 |
100 |
|
Jan-09 |
93.93 |
43.33 |
7.31 |
-44.57 |
100 |
|
Feb-09 |
40.68 |
56.73 |
0.55 |
2.03 |
100 |
|
Mar-09 |
43.92 |
54.01 |
0.22 |
1.86 |
100 |
|
Apr-09 |
50.6 |
43.16 |
0.04 |
6.2 |
100 |
|
May-09 |
47.54 |
46.35 |
2.25 |
3.86 |
100 |
|
Jun-09 |
47.24 |
38.85 |
52.82 |
-38.9 |
100 |
|
Jul-09 |
73.46 |
11.88 |
14.47 |
0.19 |
100 |
|
Aug-09 |
38.13 |
28.37 |
27.77 |
5.74 |
100 |
|
Sep-09 |
33.11 |
18.68 |
41.28 |
6.93 |
100 |
|
Oct-09 |
0 |
22.48 |
74.93 |
2.58 |
100 |
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