PRAMERICA MUTUAL FUND SCHEMES

By · Wednesday, December 28th, 2011 · No Comments »

I have been recommending some of the debt schemes of Pramerica AMC since their inception. Fund Manager has performed very well even in the most trying periods of debt markets & rising interest rate scenarios. One of the schemes whose strategy is similar to that of Pramerica Treasury Advantage Fund (TAF) was launched in October 31’2011. The said scheme has a dual strategy of capturing high accrual 12 month papers & drawing down on their maturities & buying 15-18 month papers & capturing capital gains due to roll down effect. Besides that, as the name suggests viz. PRAMERICA CREDIT OPPORTUNITIES FUND, they would be having some play on some credit plays.

 

Most of the times credit opportunities denote that the Fund Manager would invest in lower quality papers and take some credit calls. However, it is not necessarily the case every time. In this case, the Fund Manager is likely to play on those credits which have upgrade possibilities (like one of their investments in Future Capital which was upgraded recently; giving rise to good capital gains) and such similar stories besides only taking credit calls. This helps the portfolio construct in two ways viz. 1) gives higher accrual at the time of investment & 2) gives rise to capital gains in case of upgrades & subsequent compression in yields of these papers.

 

Current Scheme Attributes

Average maturity

317 days

YTM

11.42%

Corpus

Rs.108.80 Crs

Exit Load

2 % for redemption / switches before 365 days from the date of purchase

 

SIMPLE ANNUALISED % (POINT TO POINT)

REPORT AS ON DECEMBER 27’2011

1 MTH

3 MTHS

6 MTHS

12 MTHS

SINCE INCEPTION

PRAMERICA LIQUID FUND

9.31

9.32

9.19

9.03

8.57

PRAMERICA ULTRA SHORT TERM BOND FUND

9.31

9.41

9.42

9.45

9.07

PRAMERICA SHORT TERM INCOME FUND

10.71

10

10.04

 

10.74

PRAMERICA TREASURY ADVANTAGE FUND

11.18

10.19

9.5

 

9.68

PRAMERICA CREDIT OPPORTUNITIES FUND

10.32

 

 

 

12.62

 

I would strongly advise investment in the said scheme with such high YTM with one year investment horizon. I would also advise investment in all debt schemes of Pramerica AMC with following investment horizons:

 

Pramerica Short Term Income Fund

6-9 Months

Pramerica Treasury Advantage Fund

12 Months & above

 

 

PROFIT BOOKING IN G SECS

By · Monday, December 12th, 2011 · No Comments »

I had started recommending investing in G Sec schemes on weekly basis since July 29’2011. I had reiterated this call on various dates viz. August 09’2011 & September 14’2011 & giving reasons for my belief as to why GILT yields will ease off inspite of several rate hikes by RBI during this period. I had also mentioned that in the near future, RBI will have to refocus on growth (which has started coming off very rapidly which is evident from the declining IIP numbers-latest IIP  number announced today: YoY: – 5.1% in October 2011 v/s 11.4% in October 2010 ; lowest in last 28 months) & start infusing liquidity (which is happening by conducting almost Rs.25,000 Crs of OMOs & also rumours of CRR cut, etc) which will soften the yields of 10 year benchmark.

 All the above is coming true which is evident easing yields of 10 year benchmark from a high of 9% to currently below 8.50% levels (8.47%). This has happened sooner than expected with some more positives yet to happen like softening of inflation numbers, further action by RBI on infusing liquidity, much lower than expected growth numbers, etc. Hence from now to maybe January (before the announcement of Budget & Fiscal numbers), there is further scope of yields easing to between 8.25% to 8.40% levels.

Post the shocking October IIP numbers, RBI will have to start making some noises on reviving economy with some news on infusing liquidity in the system. This will give some more impetus and aid yields to ease off further from these levels.

However, following  factors will have an adverse impact on the fiscal numbers & will put a halt on the softening of the benchmark yields, putting an upward pressure sometime post Budget:

We are in a similar situation like December 2008/January 2009 when yields eased from 7.50% in November 2008 to a low of 5.50% by December 2008; triggering speculation that yields will ease off below 5% mark. I had given an investment call in November & a disinvestment call by December 2008 as investors had generated almost 25% absolute returns in a span of one month. However, industry actually gave an investment call in January 2009 when the story was already over & from then on, yields only started inching up; thereby creating negative portfolio returns & eroding all the positives generated between November & December 2008.

Most of the industry players have started giving an investment call in G Secs at current levels. However, I personally feel that there is very limited story left in G Secs from current 8.47% levels to maybe below 8.30% levels with an upward bias post February Budget announcements once Fiscal numbers are announced. Also I had mentioned that this was only a trading call & one will have to be nimble footed in exiting at the right time.

Hence, those who had invested based on the strategies mentioned on various dates should think in terms of booking profits at every stage of easing off of yields from now to January 2012.


Returns P.A. as on December 11’2011 7 days 14 days 1 month
Average Returns of all LT G Sec Schemes 23.81% 53.02% 34.58%

RETURNS THRU WEEKLY SIP FROM VARIOUS DATES RECOMMENDED BY ME ARE:


Birla Sun Life G Sec Fund – LT 29-Jul-11 09-Dec-11 XIRR 13.21%
Birla Sun Life G Sec Fund – LT 12-Aug-11 09-Dec-11 XIRR 14.31%
Birla Sun Life G Sec Fund – LT 16-Sep-11 09-Dec-11 XIRR 20.78%

 

 

 DISCLAIMER

MY RECOMMENDATIONS

By · Thursday, December 8th, 2011 · No Comments »

I have been recommending various debt schemes from January onwards including investments in GILT schemes on a systematic basis. These schemes were recommended based on some long term strategies which were being followed by these AMCs & have worked successfully even in rising interest rate scenarios. During this period from January to November, RBI raised benchmark rates by 200 bps. Inspite of these hikes, schemes recommended by me have delivered excellent returns based on the strategies which were discussed in my various notes (please visit www.msjcapital.com for detailed notes correlating with dates mentioned below on all these recommended schemes & strategies).

 I wanted to analyse all my recommendations in light of rising interest rate scenario, rising inflation, etc & also figure out whether the Fund Managers’ stuck to their strategies during these difficult times faced by the debt markets. As can be seen from the returns below (point to point from the dates on which I recommended these schemes) both my beliefs in the Fund Managers’ and their strategies have worked out well and generated handsome returns for all my esteemed clients. I had also recommended investment in G Sec schemes thru SIP due to slowing economic parameters & with a belief that at some point in near future, RBI will shift focus from managing inflation to managing slowing economic growth & will offer an opportunity for making some trading profits. When I started recommending this strategy in July 2011, benchmark yield was 8.47% on July 29’2011. It touched a high of almost 9% on November 15’2011 and is currently quoting at 8.53%. Weekly SIP during this period generated following returns:

Birla Sun Life G Sec Fund – LT 29-Jul-11 07-Dec-11 XIRR 11.37%
Birla Sun Life G Sec Fund – LT 12-Aug-11 07-Dec-11 XIRR 12.28%
Birla Sun Life G Sec Fund – LT 16-Sep-11 07-Dec-11 XIRR 18.08%

 

 

Scheme Name
Purchase Date
Current Date
Holding Period (Days)
% Ann Return
JPMorganIndiaShort Term Income Fund
02-Feb-11
07-Dec-11
308
9.50
Pramerica Short Term Income Fund
03-Feb-11
07-Dec-11
307
10.65
BNP Paribas Bond Fund – Institutional Plan
05-Apr-11
07-Dec-11
246
8.92
JPMorganIndiaShort Term Income Fund
05-Apr-11
07-Dec-11
246
9.50
Pramerica Short Term Income Fund
05-Apr-11
07-Dec-11
246
10.29
TempletonIndiaShort Term Income Plan – Inst
05-Apr-11
07-Dec-11
246
9.60
TempletonIndiaShort Term Income Plan – Inst
15-Apr-11
07-Dec-11
236
9.42
Pramerica Treasury Advantage Fund
02-Jun-11
07-Dec-11
188
9.43
Pramerica Short Term Income Fund
27-Jun-11
07-Dec-11
163
9.92
Pramerica Treasury Advantage Fund
27-Jun-11
07-Dec-11
163
9.26
TempletonIndiaIncome Opportunities Fund
29-Jun-11
07-Dec-11
161
9.09
TempletonIndiaShort Term Income Plan – Inst
29-Jun-11
07-Dec-11
161
9.20
Reliance Floating Rate Fund – Short Term Plan
11-Jul-11
07-Dec-11
149
8.96
TempletonIndiaLow Duration Fund
11-Jul-11
07-Dec-11
149
9.32
Religare Active Income Fund – Plan B
18-Jul-11
07-Dec-11
142
8.81
Axis Short Term Fund – Inst
20-Jul-11
07-Dec-11
140
8.00
Birla Sun Life Dynamic Bond Fund – Ret
20-Jul-11
07-Dec-11
140
8.74
Pramerica Short Term Income Fund
21-Jul-11
07-Dec-11
139
9.73
BNP Paribas Bond Fund – Institutional Plan
09-Nov-11
07-Dec-11
28
9.27
JPMorganIndiaShort Term Income Fund
09-Nov-11
07-Dec-11
28
9.61
Pramerica Short Term Income Fund
09-Nov-11
07-Dec-11
28
9.71
Reliance Regular Savings Fund – Debt – Inst
09-Nov-11
07-Dec-11
28
11.17
TempletonIndiaIncome Opportunities Fund
09-Nov-11
07-Dec-11
28
8.23
TempletonIndiaLow Duration Fund
09-Nov-11
07-Dec-11
28
9.34
TempletonIndiaShort Term Income Plan – Inst
09-Nov-11
07-Dec-11
28
9.23
XIRR
9.65%

 

 

MIP/Hybrid/Equity Schemes
Scheme Name
Purchase Date
Current Date
Holding Period (Days)
% Ann Return
Kotak Equity Arbitrage Fund
08-Feb-11
07-Dec-11
302
7.26
Kotak Equity Arbitrage Fund
21-Apr-11
07-Dec-11
230
7.25
Kotak Equity Arbitrage Fund
04-Jul-11
07-Dec-11
156
6.72
Tata Fixed Tenure Fund Series 2 – Scheme A (3 Yr)
11-Jul-11
07-Dec-11
149
8.99
Kotak Equity Arbitrage Fund
26-Jul-11
07-Dec-11
134
6.51
HDFC Monthly Income Plan – LTP
27-Jul-11
07-Dec-11
133
(3.05)
HDFC Multiple Yield Fund – Plan 2005
27-Jul-11
07-Dec-11
133
5.06
Axis Triple Advantage Fund
22-Sep-11
07-Dec-11
76
6.21
Canara Robeco InDiGo Fund
22-Sep-11
07-Dec-11
76
10.85
Axis Hybrid Fund – Series 3
30-Sep-11
07-Dec-11
68
68.60
FT India Dynamic PE Ratio Fund of Funds
12-Oct-11
07-Dec-11
56
(1.81)
TempletonIndiaCorporate Bond Opportunities Fund
28-Nov-11
07-Dec-11
9
0.00
XIRR
8.90%
DISCLAIMER
Topics: Debt Market · Tags:

TEMPLETON INDIA CORPORATE BOND OPPORTUNITIES FUND – NFO

By · Wednesday, November 23rd, 2011 · 1 Comment »

Franklin Templeton is one Fund House which has given solutions at every bucket of the yield curve. All that the investor needs to do is identify the investment horizon of their cash flow and plug it in with one of the schemes of Franklin Templeton keeping in mind their average maturities and exit load issues. Once the investor has done this exercise, the second step is to know the captured YTM of the respective scheme less the expense ratio and they would be reasonably certain of what returns they should expect post their investment horizon of say 3 Months/12 Months/18 Months, etc. If there are rate hikes in the intervening period, returns expectations should be adjusted for this (however still with positive bias on the portfolio returns scenario).

 Most of the Debt schemes of Templeton play on the following 3 stories (combination of any two or three of the stories):


  1. High Accruals (or even low accruals if interest rates are on the lower side) & drawing down on maturities of this accrual
  2. Roll down effect after (after 12 Months, 18 Months, paper becoming 6 Months paper & giving rise to capital gains if the yield curve is even slightly steep) &
  3. Identifying sweet spots on the Yield Curve which offer maximum spreads and future compression possibility

However, TICBOF will play on one more stories besides the above 3: viz:


  1. Bull steepening: going ahead TICBOF will play on one more story which is called Bull Steepening. Yields at the shorter end of the curve could come down more rapidly than the longer end, presenting a better opportunity of capital gains in 1-3 year corporate bond segment

Fund Manager feels that there is no scope for investment at the long end G Secs due to rising interest rate scenario and fear of higher fiscal deficit. Also, due to more demand by Insurance companies, FIIs, Banks, EPFO etc, very little spread will be available in the PSU bond segment.

However, due to following factors, spreads in AAA & AA rated Corporate Bonds in 1-3 years & 2-5 year segment are much higher and can in future give rise to capital gains due to the abovementioned impact of BULL STEEPENING:


Hence, with debt market story panning out as envisaged (peaking of interest rates, lower inflation numbers going forward, lower economic growth & lower credit offtake, etc) will augur well for investing in this segment of 2-5 year corporate bonds and earn very healthy double digit figure returns over next 3 years.

I would strongly recommend to invest in the said scheme NFO with 30-36 month investment horizon as there will be exit load in place for redemptions before 30 months as follows:


DISCLAIMER
Topics: Debt Market, NFOs · Tags: , ,

PARTICIPATE IN EQUITY PERFORMANCE WITHOUT LOSING SLEEP

By · Wednesday, October 12th, 2011 · 1 Comment »

For a long time I have been recommending investing in equity mutual fund schemes either thru strategy of Systematic Investment Plan or Systematic Transfer Plan. Intention of these strategies was to avoid taking SENSEX calls or stock specific calls and create an average which will over longer periods (read 3-5 years) work in favour of the investor.

 However, one scheme which manages to achieve the same objective (of not trying to outguess the market) at the same time manage to cushion the investor from ups & downs in the market is FT India Dynamic PE Ratio Fund of Funds. In the said scheme, an investor can take a call of investing lump sum amount and not be worried on whether he/she has timed the market correctly or not. Strategy of rebalancing between debt & equity based on market PE on a monthly basis will ensure that the investor has higher exposure in equity when market PE is low & vice versa.

  • Please note that this scheme is Fund of Funds (FoF) and will be treated as debt scheme for taxation purposes. Hence, it is advisable to invest in growth option with at least 3 year investment horizon.
  • This scheme does re balancing between debt & equity by investing in Templeton India Income Scheme for debt component & in Franklin India Bluechip Fund.
  • Though this should be benchmarked against balanced schemes, historically, it has outperformed NIFTY over many time horizons & replicating equity returns.
  • Investment Strategy:

IF WEGHTED AVG

PE RATIO OF NSE

FALLS IN THIS BAND

…EQUITY COMPONENT

WILL BE

UPTO 12

90 TO 100

12 TO 16

70 TO 90

16 TO 20

50 TO 70

20 TO 24

30 TO 50

24 TO 28

10 TO 30

28 & ABOVE

0 TO 10

  • Following 3 year rolling return since January 03’2011 TO October 04’2011 which covers the worst period of equity markets (2008-2009) will prove how this strategy has not only protected the downside but generated positive returns over 3 years:

No of observations

182

Max Return

19.15

Min Return

7.52

Average Return

12.25

SENSEX

JAN 14’08

20959

JAN 14’11

18860

Returns

-3.33%#

# as against returns of 7.52% earned in the scheme, SENSEX posted negative 3.33% over the same time horizon. Hence outperformance by almost 11%

  • Current market PE as on September 30’2011 was 17.85 & hence allocation to Franklin India Bluechip is 60% & 40% is invested in Templeton India Income scheme

 CONCLUSION:


I WOULD RECOMMEND THIS SCHEME AS AN ALTERNATIVE STRATEGY TO INVESTING IN EQUITIES THRU SIP OR STP. IN THIS SCHEME AN INVESTOR CAN TAKE A CALL OF INVESTING A LUMP SUM AMOUNT (WHICH SO FAR I HAVE BEEN DISSUADING) & NOT LOSE SLEEP OVER TIMING THE MARKET

*Data Provided by Franklin Templeton MF. NAVs data from Franklin TempletonIndiawebsite & rolling return calculations done by Research Team at MSJ Capital

 

DISCLAIMER