This fund from DSP Merrill Lynch had one of the best risk-reward profiles in the category, making it a solid offering for long-term investors. While this fund is likely to give you a smooth ride, the occasional misfire cannot be ruled out, as it is the case now. A consistent top quartile return in the past two calendar years is pleasing to investors, while active duration management with a relatively concentrated holding has been its key feature.
Though the fund's portfolio has been spread over a large number of securities, this is hardly a cause for concern as most government securities are actively traded in the market. In earlier years, the fund's investments were confined to just two to five government securities. However, as spreads have become narrower, the fund has relied more on trading profits and hence the number of holdings have increased up to eight securities in 2003. That apart, in the past four months, the fund has placed heavy bets on longer tenure gilts, making it a relatively aggressive player in the category.
The biggest plus of DSPML GSF Longer Duration fund has been its ability to actively realign its portfolio maturity as needed. And for that it has always loaded up with liquid securities. This has helped it in deriving maximum gains during the rate cuts. For instance, during the October 2002 bank rate-cut, it increased its average maturity from 9.51 years in September 2002 to 12.13 years in October and further to 15.68 years the next month. The story was similar during the October 2001 rate cut. Thus, in the last quarter of both calendar years, it bested its peers by a huge margin.
The best example of the fund's astute portfolio management was seen during the volatile first quarter of 2003. While the category was down 0.06 per cent, DSPML GSF Longer Duration was up 1.14 per cent. Though it had a high average maturity at that time, an average 13 per cent cash helped it in curtailing losses. High cash exposure is not new for this fund. During the rate hike of July 2000, the fund's cash stake was 26 per cent, which acted as a shield against the resulting fall.
This fund has got all the constituents that a gilt fund investor should looks for: below average expenses, lower downside risk and consistent returns.