JM Income – Growth Plan, the first open-end income fund may not be recognised as a core bond holding, but in the past three years, it has more than matched blows with the intermediate-term bond category's heaviest hitters. Indeed, the fund's three-year trailing returns of 14.88% ranks the top of the category's performance and towers over the category's average of 12.75%. The fund has consistently outperformed its peers in the past two years. The relative superior performance has been achieved from a steady income stream and an aggressive duration management.
With declining interest rate the fund's recent returns are just as impressive. It gained smartly in early 2001, with a large corporate bond stake. More recently, the fund has gotten a lift from the strong performance of its elongated gilt portfolio. With these timely moves, the fund has galloped 18.61 percent year-to-date through December 20, 2001.
The funds charter allows it to take a small equity exposure. And in its early days, which coincided with a flourishing equity market and high interest rates, the fund built a high yielding corporate debt portfolio and small equity allocation to boost returns. This helped the fund put up a strong performance in 1996 and 1997. Since September 1998 the fund has abstained from equities. However, the high-yield debt portfolio built in its early years continued to reap high yield for quite some time in a falling interest rate regime. The new money poring in the fund, it assumed little more credit risk than its average peer to earn higher interest income. However, the fund has done well to avoid most of the market's blowups and the fund has shown few ill effects of deteriorating credit quality.
With its standout performance, the fund asset base has grown rapidly, from Rs. 120 crore in November '99 to Rs. 640 crore in November '01. With growing asset, the fund has enlarged its government securities allocation and currently maintains a defensive posture on the rate outlook. However in current uncertainty, the fund is proving to be too volatile for its select exposure to gilts.
This fund's well-executed strategy and consistent, long-term record speaks volumes. It qualifies to be a core medium-term bond fund holding.