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Quality and History

Grindlays SSI may no longer be as good as it was in the beginning, but it remains a solid choice for its unflinching commitment to quality portfolio, reasonably active interest rate bets and reasonable expenses.

After a great start—its performance was third in its category in its first year—Grindlays Super Saver Income Fund is now stationed in the middle of the medium-term debt fund category. It has had its share of hiccups along the way: when interest rates rose in the first quarter of 2003, Grindlays Super Saver Income took a larger hit than the average fund.

Although the fund has brought portfolio maturity down to 5.65 years from 6.16 years in January, its allocation to gilts remained constant at 42 per cent. Also, the fund did not move into cash and thus the damage was done. As gilt prices recovered on budget day the fund also increased allocation to nearly 50 per cent by the middle of the year.

Towards year-end as volatility re-emerged the fund was more proactive. Portfolio maturity came down to 6.23 years from 7.44 in the previous month and gilt exposure fell to 41 per cent from 48 per cent earlier. More significantly, cash allocation was quadrupled to 12 per cent. The year has seen the fund entrenched in the second quartile of the category.

Grindlays SSI's first year after its July 2000 launch—has been the highlight of its performance so far. The fund was of course helped by a series of rate cuts in the year, which kept bond prices soaring. As a result of its higher portfolio maturity the fund also suffered more in the post 9/11 volatility in gilt markets. Though it bought average maturity down to 4.17 years from 4.83 in August, this was not sufficient to prevent the fund from losing more than peer group schemes. A quick increase to 4.75 years following the rate cut in the monetary policy enabled the fund to also gain more on the upside.

On the credit risk spectrum, while its peers hold out that lower rated corporate bonds stand a strong chance of quality upgrade when economy recovers, the fund seems to believe in the opposite, that the chances of further downgrade are higher with lower rated bonds. Thus the exposure to lower rated corporate bonds has nearly always been under 10 per cent.

Overall, with an unflinching commitment to a quality portfolio, reasonably active interest rate bets and expenses in line with the category Grindlays Super Saver Income Fund remains a good choice.