After lagging behind most of its bond peers for much of 1998 and 1999, DSPML Bond Fund is finally reaping the harvest of its active interest rates risk management. But then its extra sensitivity to interest rate fluctuation vis-à-vis others in its category makes it a highly volatile offering.
Though in early 2001, when the interest rate were cut twice--the fund was caught at the lower-end of the maturity spectrum. However, it made up for the lost opportunity by aggressively investing in government securities, during rest of the year. A ballistic annual performance in 2001 pushed it amongst the top five in its category. This is in contrast to its previous years' track record-when the fund had lagged behind the category averages. However, its year-to-date returns through October 17,once again position it in the bottom half of its category.
With a focus on credit quality, the fund has structured its corpus around highly rated papers. The focus on portfolio quality has been retained since inception. However with a steadily rising asset base, it was the first fund to invest in government securities. And for yield enhancement, it does gravitate to below AAA rated corporate bonds. This has however been capped at around 10% of assets.
The focus on AAA rated instruments is consistent with its strategy of limiting risk, for these instruments are high on credit quality. However, the high quality focus limits the coupon interest earned by these instruments though the fund has sought to mitigate the same with interest rate management. But this comes with a cost-- its standard deviation -- a measure of the fund's volatility -- is among the highest in the category. No doubt that on volatile occasions, this fund, like its category peers had suffered losses, but the pain has been less severe. For instance in the month of May, this year-the fund was down 0.26 per cent while its peers had lost 0.31 per cent.
Overall, DSPML Bond Fund remains a solid bet for long-term investors who aren't too scared of its bouts of volatility.