This seven-and-a-half year old, first open-end income fund can give many a complex. The fund's long-term returns are stellar and had consistently beaten its peers. Aggressive duration management and dexterous handling of portfolio has helped JM Income generate a steady income.
All this can be attributed to fund manager's taking the right call on interest rate bets. For instance, the rate cuts of 2001. Among the first to anticipate rate cuts, he kept the portfolio maturity high. The fund's median average maturity of over 5 years through 2001 was among the highest in the category. This move paid off in spades finding a place among the toppers last year. Higher bond stake initially and a high gilt exposure lately has helped the fund hog the show.
That apart, the fund has succeeded in avoiding most market blow-ups. Case in point: July 2000 when interest rates moved up. The fund was able to remain in the black vis-a-vis peers, whose returns were blemished. For your information, JM Income has been able to do that without taking too much credit risk. The fund manager clearly believes in maintaining a high quality portfolio.
However, with more money pouring in, the fund has started investing in some below AAA bonds to earn higher income. In the last two years, The fund's asset base has grown almost five times from Rs 150 crore in June 2000 to Rs 721 crore in June 2002.
Largely adopting a buy-and-hold strategy, the fund manager -- lately with gilt yields bottoming out -- believes that it will be a traders market now. Therefore, to enhance liquidity the fund manager has parked a substantial portion of cash in gilts (33.5%) and has reduced portfolio duration to 3.5 years. Though this is clearly a case of terrific portfolio with a terrific manager, investors, however, need to understand that this fund in its current form is highly volatile. The fund's standard deviation of 0.85 is on the higher side in the category.
Overall, this fund's well-executed strategy and consistent long-term record speaks volumes about the prospects of the fund. It is a solid core bond fund around.
This article was originally published on August 02, 2002.
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