Among the first few to have taken a liking to gilts (since 1998), this fund has a high quality bent of mind. With a careful eye on credit quality this fund's annual returns in 2000 and 2001 created envy among its bond buddies. But then its extra sensitivity to interest rate fluctuation vis-à-vis others in its category makes it a highly volatile offering.
After lagging majority of its bond peers for much of 1998 and 1999, the fund is finally reaping the harvest of its high quality focus. That part, fund manager's wild allocatory moves need a mention here. In 2000, the fund manager took huge interest rate bets and even met with success. For instance, the fund manager increased portfolio maturity to as high as 6.82 years prior to the rate cut of April 2000. However, within a short span of three months, maturity was suddenly brought down to 2.12 years following the rate hike. Thus, the fund gained 11.09% through the year beating 70% of its peers.
Unfortunately, what worked then didn't work during the double rate cut of February-March 2001. Since the fund's portfolio was spread across lower maturity papers, it impaired its return, resulting in DSPML Bond lagging its average peers. But the fund soon recovered by acting smartly during the rate cut in October last year. It stretched its maturity to 5.4 years ahead of peers, and, consequently, the fund was placed in the top 15% of the category in 2001.
Constantly playing around with the portfolio makes this fund a slightly volatile offering. Its standard deviation -- a measure of the fund's volatility -- is among the highest in the category. But its preference for AAA bonds reduces any possibility of default. As a result, exposure to AA and below investment grade paper has been capped at around 10%, which reflects that the fund is not interested in taking any credit risk. That apart, a sizable allocation to gilts makes this fund an attractive pick. However, all this hasn't translated into substantial gains for the fund in recent months, although it still ranks in the category's top 60% for the year to date through June 18, 2002.
Overall, the fund remains a solid bet for aggressive long-term investors who aren't too scared of its volatile disposition.
This article was originally published on June 24, 2002.
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