Dexterously choosing between interest rate risk and credit quality, the fund has emerged a middle of the ladder performer, while minimising risks in the process
12-Jul-2001 •Research Desk
Dexterously choosing between interest rate risk and credit quality, Alliance Liquid Income has emerged a middle of the ladder performer, while minimising risks in the process. The fund holds a consistent track record of half-yearly dividend payments, 8 in all aggregating to 44.9%.
The fund took off with a portfolio pitched heavily in favour of AA rated instruments. While earlier in 1999, the fund was largely parked in AAA debt instruments, double A rated instrument still accounted for a sizeable 40% of the corpus. These instruments earn higher coupon income for their lower credit quality. Amid growing focus on credit quality, the fund has moved in to hike exposure to liquid AAA instruments, including Government Securities. While AAA quality instruments account for 80% of the corpus on an average, under favorable circumstances the fund stretches its AA exposure. The exposure in June 2001 at 32% is a case in point.
Bond prices are linked to the prevailing interest rates, with bonds gaining with a rate cut and vice versa. By implication, lower maturity portfolios are less susceptible to price changes. Alliance Liquid Income has guarded the portfolio against interest rate risk by largely maintaining a portfolio with a lower maturity. While this conservatism did shield the portfolio in volatile times, the fund has also missed out on the rally with an ultra conservative strategy. Even as the fund has repositioned itself at the higher maturity ladder in May 2001, it has come rather late in the day.
With a growing corpus and relatively conservative strategy, Alliance Liquid Income offers 13.53% in the last trailing year ending June 2001. This average performance is commensurate with lower risk associated with the fund.