Magnum Income, erstwhile Magnum LiquiBond has been a steady performer -- giving an annualised return of 12.85% since launch. It has yielded as much as an average bond fund with reasonable consistency. In recent months, the fund has been little ahead of its average peer. Year-to-date through September 17, 2002, the fund is up 8.86% a 80 basis point lead over the average. However, its aggressive duration calls shows in volatile times. In May, it lost nearly twice as much as its peers and has a higher standard deviation (a measure of volatility) -- 0.85 against 0.78 for the average category.
The fund is aggressive with its interest rate-risk management and conservative in assuming credit risk. A clear shift from its earlier strategy in 2000 and before. And with rapidly growing asset base, the fund portfolio has emphasized top rated bonds of manufacturing companies. These issues typically yield 80 to 100 basis points less than a top rated financial company. On one hand, the fund willingly compromises on the yield for its aversion to assume credit risk. On the other hand, with aggressive duration bets, it tries to enhance its return on the rate sensitive government securities.
This shift is clearly shows in its portfolio characteristics. Its allocation to below-AAA rated bonds has come down sharply -- from 20% in February, 2001 to 8.74% now. In 2002, its allocation to gilts has been in the range of 24-29% and an average maturity of 4.13-4.86 years. But in August, the fund has turned bullish on the rate outlook – increasing its gilt exposure to 35% and the average maturity to 5.56 years.
Magnum Income is a fine choice for investors seeking a diversified investment grade bond portfolio. The longevity of its winning steak could be a bonus. It could be turbulent, still a worthwhile deal.