AXIS SHORT TERM PLAN – AN UPDATE
I had given an update on AXIS Short Term Plan post their NFO closure on January 28’2010. The fund Manager had created a portfolio of 50% in 2-5 year NCDs & balance in CPs/CDs with less than one year maturity with an average maturity of 1.75 years & gross yield of 6.29%.
Inspite of the corporate bond yields having shot up from around 8.25/8.30% to close to 8.50-8.75%; the said scheme has generated positive returns of 3.62% p.a. since inception i.e. January 20’2010 due to their strategy of 50:50 of long & short bonds with higher carry.
Since then, the Fund Manager has taken advantage of tightness in the short end of the yield curve by increasing their exposure to 1 year CDs to approx.70% & reducing their exposure in 2-5 year bonds to 30%. This has helped in reducing the average maturity to 1.30 years & enhanced gross yields to more than 6.50% plus.
Even before going into April, there is already some gains which has accrued (but not entirely reflecting in the NAVs) as the one year CDs which were invested at 6.65% are already quoting at 6.40/45% & likely to go as low as 6% by April 2010 before the Credit Policy Review. Even 5 year corporate bonds will quote at least 20-25 bps lower than the current levels.
Returns for past 26 days from February 19 to March 17’2010 is as high as 7.85 % p.a.
Fund Manager is likely to book some profits ahead of the Credit Policy Review; as there is expectation of rate hikes due to inflation concerns. However, market expects a very gradual process of increasing the benchmark rates as Government borrowing cycle will start in the month of April onwards. Also by booking some profits in April-pre policy and creating cash in the portfolio, the Fund Manager will be in a comfortable position to capture any spikes in the yields post the policy (if RBI increases the benchmark rates).
Hence, to conclude, if one invests in the said scheme currently & for those who have invested in NFO would stand to benefit once the compression story unfolds in the month of April & simultaneously the Fund Manager will also book some profits on one year CDs portfolio.
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