Aditya Birla Sun Life Short Term Fund Regular Plan Quarterly Reinvst of Inc Dis cum Cap Wdrl

The following text is from April 2023.

The fund tends to take an active duration call at the shorter end of the yield curve. It can also take credit bets, investing in below AA rated papers from time to time. Mohit Sharma and Kaustubh Gupta construct the portfolio based their view on yield-curve movements. They typically look at investing in money market securities, corporate bonds, government securities, and SDL’s. There is a lot of emphasis on safety and liquidity and reliance on fundamental research for security selection.

We think that the research process at the AMC is detailed. On the macroeconomic front, the team tracks headline indicators and tends to follow a market-linked strategy as opposed to a purely macro-based one. The duration views of the team resonate across all their fixed-income strategies. On the corporate bonds side, the fund house uses internal credit ratings as opposed to external ones. The ratings are presented to the investment committee, after which issuers can be invested into, but only after they make a grade on the internal research process. Given their focus on quality and liquidity, analysts tend to undertake an in-depth evaluation of management, corporate governance practices, financial standing of the issuers, liquidity, and risk. The team also undertakes a detailed competitor analysis with a view to segment, evaluate, and categorize peer holdings across different maturity buckets.

The fund has the flexibility to move across the credit spectrum and generate alpha by positioning itself at the lower end of the yield curve. The current portfolio has about 54% invested in corporate bonds, with the remaining invested in a combination of G-Secs and cash/cash equivalents.

The managers can increase their exposure towards corporate bonds based on their spreads and the availability of these papers. For instance, the portfolio reflected a corporate bond exposure of over 60% in May/June 2020. Exposure towards G-Secs has also gone up from about 15%-20% in early 2019 to around 30% in August 2019 and 35% as of June 2020; it has remained at this level since. The managers can also invest a portion of the fund in SDLs and asset-backed securities from a tactical perspective.

On the credit side, the fund’s exposure towards below AAA rated paper stands at around 77% as of January 2023. AA exposures remain higher compared with peers at around 22%. The fund also holds some exposure towards REITs.

The fund ran a duration of close to 3.0 years in 2017, which was reduced to around 1.7 years in 2018, owing to the uncertain interest-rate environment. The fund’s duration was increased to around 2.0 years in March 2019 and currently stands at around 1.97 years.

Overall, the team ensures that the liquidity levels in the portfolio are maintained, especially given that the concentration levels a few issues can go up significantly. There is a lot of emphasis placed on a company's quality, its ability meet its debts, and its corporate governance.