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A Strong Start

Grindlays Super Saver Income Fund is a suitable choice for investors looking for steady returns. Investors should however be prepared for lower returns as the best of the bond market rally is over.

A better-than-average performance has seen Grindlays Super Saver Income Fund stay ahead of the pack in the last two years.

Grindlays Super Saver Income Fund was off to a flying start in 2001. It was the third best performing fund in the year because of a higher portfolio maturity of over four and a half years. The fund was, of course, helped by a series of rate cuts in the year, which kept bond prices soaring. But because of the higher portfolio maturity, the fund also suffered more when the gilt markets turned volatile post-9/11. Though it brought the average maturity down to 4.17 years from 4.83 years in August, this was not sufficient to prevent the fund from losing more than the category. A quick increase to 4.75 years following the rate cut in the monetary policy enabled the fund to also gain more as bond prices rose.

In 2002, the fund increased its average maturity to above five and a half years. The average income fund on the other hand maintained its maturity at five years. This strategy has helped in bullish times but has harmed in times of intermittent volatility or when yields rise. As times have been more bullish in recent years, the fund has benefited.

When yields suddenly shot up in the first quarter of 2003, Grindlays Supersaver Income was hit more than the average fund. With higher volatility in recent times, the fund has moved to the middle of the category rankings this year.

On the credit risk spectrum, while its peers hold out that lower rated corporate bonds stand a strong chance of quality upgrade when the economy recovers, this fund seems to believe in the opposite—ie chances of further downgrades are higher with lower rated bonds. Thus, the exposure to lower rated corporate bonds has always been under 10 per cent. The fund's expense ratio at 1.62 per cent is in line with that of the category and this should help investors in the long run.

Overall, unflinching commitment to a quality portfolio and reasonably active interest rate bets make Grindlays Super Saver Income Fund a good choice.