Though it has never really topped the charts, Zurich India High Interest has delivered a decent long-term return. And more recently, with greater consistency. Lately, this fund has been a chartbuster with its trailing 1-year return of 14.79%, which is among the category best (as on June 6, 2002). All this shows in its 4-star rating, with an average return while assuming lower risk.
The fund has actively managed interest rate risk with a keen eye on credit risk. Also, Zurich India's aggressive posture together with a good portfolio mix of AAA bonds and gilts has been a winning strategy. For example, in 2001 when RBI aggressively slashed bank rate three times, the fund stretched its portfolio maturity from 4 years in January to 5.76 years in November -- the highest so far. This was well supported by the fund's increased allocation to government securities (54% in February 2001). Consequently, through the year, the fund ranked in the top quartile of the category. And in the last one year, it has kept its average maturity between 3.4 and 5.76 year, which reflect its active interest rate risk management.
However, all this only explains the fund's recent moves. Its initial cautious approach saw it languish at the bottom of the category for long. The fund's portfolio was mostly spread over AAA-rated paper, with its maturity hovering around 2 years. And since the fund mostly stayed away from low-quality bonds (which has a higher coupon attached to it but carries a higher risk), the fund's gain was limited. So, till 2000, the fund remained an underperformer as it wasn't able to reap the benefits of declining interest rates.
Currently, it maintains a medium-term portfolio maturity (4.71 years), which is a defensive stance keeping in view the government's softer interest rate stance. And to boost return, the fund has increased its exposure to AA and below-AA paper (14.5%). Hence, the fund is up 4.58% on a year-to-date basis as against average peer's 3.95% return.
The fund's recent ability to execute its strategy well makes it a winner. Even its current return across all time periods -- which is above the category average -- shows the merit of its approach. So, despite its initial slip, investors with a long-term investment horizon can expect decent return from this fund.
This article was originally published on June 07, 2002.
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