HSBC Gilt Short Term is the only fund in its category to generate negative one-year returns. Here's why
09-Apr-2009 •Research Desk
HSBC Gilt Short Term Fund is in the news for the wrong reasons. It is the only fund in its category (Gilt Short Term) to give a negative one-year return (February 28, 2009). While the category average was 7.39 per cent in the past one year, this fund has shed 4.25 per cent. Not surprisingly, the fund rating has dropped by two stars and is now a 1-star fund.
The fund changed hands in January 2009. Once Sanjay Shah took over, there was a visible change in the portfolio.
The fund had earlier steered clear of gilts which were absent in its portfolio right from July 2004. And the average maturity was well below a year and ranged from 1.095 days to 3.65 days over the past four years.
As the yield of the 10-year benchmark paper began to creep upwards in the first two months of the year, Shah began to increase his exposure to gilts. The allocation to gilts in the portfolio rose from nil in December 2008 to 73.25 per cent in January 2009 and further to 86.03 per cent in February 2009.
The fund’s mandate allows for a maximum maturity of seven years. But the average maturity of the fund rose to 12.57 years in January 2009 and 11.67 years in February 2009. The move did not pay off and the fund lost 7.84 per cent in January while the category shed just 0.75 per cent. In February, the fund gained 0.47 per cent against the category’s gain of 0.29 per cent.
What’s baffling is that no other fund in the category has bet so heavily on higher maturity gilts. In January, Tata GSF Short Maturity Fund had the second highest maturity of 5.06 years and it shed 2.77 per cent, a much lesser fall than the fund in question. In February, ICICI Prudential Gilt Treasury PF had the second highest maturity of 4.71 years and it gained 1.05 per cent, a higher gain than HSBC Gilt Short Term Fund.