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HDFC Corporate Bond Fund
(An open ended debt scheme predominantly investing in AA+ and above rated
corporate bonds)
January, 2019
This product is suitable for investors who are seeking*:• Income over short to medium term.• To generate income/capital appreciation through investments predominantly in AA+ and above rated
corporate Bond.*Investors should consult their financial advisers if in doubt about whether the product is suitable forthem.
Riskometer
A portfolio of high quality corporate bonds!^
^Please refer slide 8
• Real Yields in India at historical high
• CPI outlook remains benign
led by food inflation
• Healthy Differential with US Real yields
• Sharp fall in oil prices eases pressure on CAD
– Fall in oil prices beneficial for CAD and INR
outlook
– Every USD 10 per barrel fall in crude prices
results in CAD falling by ~0.4% of GDP
• US Federal Governor’s comment that rates are “just
below” neutral rate indicates benign outlook for
rise in Fed rates
– US 10Y yields have come off materially from
the high made in Nov’18
Real Yields = Month-end 10Y GSec Yield and CPI; Updated till 30th
Nov’18. CPI-IW is used to calculate real yields for
period before 2012
FY16 FY17 FY18 H1FY19
Crude prices (USD
/bbl)50.2 48.8 56.7 75.0
CAD as % of GDP -1.1 -0.7 -1.9 -2.7
2.00
2.50
3.00
3.50
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
%US 10 Year Yield
Source: Bloomberg, RBI, Kotak Institutional research.
-12.0
-7.0
-2.0
3.0
Jan/03 Apr/06 Jul/09 Oct/12 Jan/16
%Healthy spread between US and India
Real Rates
-14.0
-4.0
6.0
Jan/03 Apr/06 Jul/09 Oct/12 Jan/16
% India's Real Rates at near historic
high
Interest Rates Outlook:Forces favouring lower Interest rates
2
Bank credit growth accelerating
• Outpacing the deposit growth
• Recovery in capex cycle likely to accelerate
credit growth further
8.0%
15.1%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18
Credit Growth Vs. Deposit Growth
Deposit growth % Credit growth %
18.0%
Jun/15 Nov/15 Apr/16 Sep/16 Feb/17 Jul/17 Dec/17 May/18 Oct/18
Excess SLR Securities with PSU Banks
Regulatory Requirement # Adj SLR*
* Adj SLR = Investments in Statutory Liquidity Ratio (SLR) Securities adjusted for securities under LAF
# Regulatory Requirements = SLR + Liquidity coverage requirement requirements (~15-17% of NDTL) – carve out allowed from SLR
Source: RBI, Kotak Institutional research, NSDL
1.3
-0.0
-1.4 -1.5
-2.9
-1.6
0.0 0.5
-1.4 -1.3
0.8 0.7
-5.0
-3.0
-1.0
1.0
3.0
Jan18
Feb18
Mar18
Apr18
May18
Jun18
Jul1
8
Aug1
8
Sep18
Oct18
Nov1
8
Dec18
USD bn Net FII Debt flows
Interest Rates Outlook:Forces adversely impacting interest rate
outlook
3
Excess SLR Investments, especially with PSU banks
• Incremental demand for G-sec could remain muted
Debt FII Flows remain volatile on back of rising
USD and global liquidity unwinding
• Net FII Debt Outflows CY18 stood at USD 6.9 bn
75
125
175
225
275
325
Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
bps
NBFC Spread rises post IL&FS default*
Average AAA Spread
Average AA Spread
Source: Daily valuation provided by ICRA/CRISIL; Bloomberg; Data is updated till 31st
Dec 2018. Refer disclaimer on slide 17
Liquidity concerns post IL&FS default addressed by
• Timely actions by RBI and Government
• Securitisation / asset sale, unutilised bank
lines etc.
Growth expected to moderate for NBFCs
• Cost of funds rising with widening of spreads
• Risk aversion amongst lenders
Concern over NBFCs / HFCs with higher yielding real estate
exposures.
Driven by widening of spreads for NBFCs, even corporate bond
spreads have widened
* AAA Average spread is average spread of 10 large AAA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec. AA Average spread is average spread of 5 large AA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec^ AAA spread is spread of 3 Year AAA rated corporate bond yields over 3 Yr benchmark Gsec yields. AA spread is spread of 3 Year AA rated corporate bond yields over 3 Yr benchmark Gsec yields
40
60
80
100
120
140
160
180
200
220
Sep/18 Oct/18 Nov/18 Dec/18
bps Corporate bond spreads widens^
3 yr AAA Spread
3 yr AA Spread
In our opinion, cautious approach towards credit needs to be maintained
Liquidity concerns for NBFCs addressed, outlook is mixed
4
• Conflicting forces lead to a mixed outlook on interest rates
• Near term challenges of NBFCs have diminished; cautious
approach needs to be maintained
• In view of the above, a good strategy for fixed income
investments in current market is
Controlled duration
Low credit risk
HDFC Corporate Bond Fund ticks both the above requirements
Investments must be tailored to investor’s individual situation and objectives and therefore, investors should consult
their financial advisors to ascertain whether the products are suitable for them.
Current Fixed Income environment
5
HDFC Corporate Bond Fund: Sources of Returns
• Interest accruals
• Capital gains/losses due to rate movements
• Taking advantage of tactical opportunities in Corporate Bond vs.
Sovereign Bond spread
HDFC Corporate Bond Fund primarily focuses on returns through interest accruals
HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in the scheme.
6
HDFC Corporate Bond Fund: Portfolio Positioning
• Portfolio is focused on maintaining superior credit quality with
minimum investment of 80% in AA+ above rated corporate
bonds with focus on accruals.
• Fund manager will seek to maintain the Macaulay duration of
the Portfolio around 2-4 years.
The current investment strategy is subject to change depending on the market conditions. For complete portfolio details refer www.hdfcfund.com.HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in thescheme. The product positioning and intended duration is based on current view and is subject to change.
Macaulay Duration (Duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk betweensecurities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights arenothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than itsterm to maturity, except in the case of zero coupon securities where they are the same.
7
HDFC Corporate Bond
8
Source: MFI Explorer, AAA includes Sovereign, Cash, Cash Equivalents and Net Current Assets
0
0.5
1
1.5
2
2.5
3
3.5
4
Average Maturity (years)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
AAA & Equivalent
High Quality Portfolio with range bound maturity
Analysis of Distribution of Returns since inception
9
Annual Rolling Returns
Annual Rolling - Since inception, the fund has given more than 6% returns 89% of the times.
3 Year Rolling Returns
3 year Rolling - Since inception, the fund has given more than 7.5% returns – 98% of the times.
1 year and 3 year Rolling returns are calculated based on daily frequency. For Detailed performance refer Slide no 14. Past performance may or may not be sustained in the future. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in the scheme. Inception date: June 29, 2010
Annual Returns (%) % of times
Less than 6 11%
6% to 7.5% 13%
7.5% to 9% 31%
9% to 12% 44%
More than 12% 1%
Annual Returns(%) % of times
Less than 6 0%
6% to 7.5% 2%
7.5% to 9% 40%
9% to 12% 58%
More than 12% 0%
6
7
8
9
10
11
12
2
4
6
8
10
12
14
Jun-1
1
Dec-
11
Jun-1
2
Dec-
12
Jun-1
3
Dec-
13
Jun-1
4
Dec-
14
Jun-1
5
Dec-
15
Jun-1
6
Dec-
16
Jun-1
7
Dec-
17
Jun-1
8
Dec-
18
Fund Suitability
• The Fund is suitable for investors wanting to take
advantage of higher credit quality with relatively lower
volatility
• Ideal for investors having an investment horizon of 6 to
12 months or more
• Investors looking to diversify their debt holdings with
focus on accruals
10
HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in thescheme. The suggested investment horizon is based on current view and is subject to change.
Portfolio Statistics
11
Average Maturity Modified Duration Yield To Maturity
2.88 years 2.35 years 8.56%
For complete portfolio details refer www.hdfcfund.com. Portfolio details provided as on December 31, 2018.
Portfolio Classification by Asset Class(%)Portfolio Classification by rating class (%)
Sovereign 7.3
AAA/AAA(SO)/A1+/A1+(SO) & Equivalent 89.45
Cash,Cash Equivalents and Net Current Assets
3.25
7.32.15
87.3
3.25
0
20
40
60
80
100
G-Sec, SDL Securitized DebtInstruments
Credit Exposure Cash, CashEquivalents and
Net CurrentAssets
Nature of Scheme An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds
Category of Scheme Corporate Bond Fund
Inception Date
(Date of allotment)June 29th, 2010
Investment ObjectiveTo generate income/capital appreciation through investments predominantly in AA+ and above rated
corporate bonds. There is no assurance that the investment objective of the Scheme will be realized.
Fund Manager $ Anupam Joshi
Investment Plan Regular Plan & Direct Plan
Investment OptionsUnder Each Plan: Growth & Dividend. The Dividend Option offers Dividend Payout and Reinvestmentfacility
Minimum ApplicationAmount. (Under EachPlan/Option)
Purchase: Rs. 5,000 and any amount thereafter
Additional Purchase: Rs. 1,000 and any amount thereafter
Benchmark
Additional Benchmark
CRISIL Composite Bond Fund Index
CRISIL 10 Year GILT Index
Fund Facts
12
$ Dedicated Fund Manager for Overseas Investments: Mr. Amar KalkundrikarFor further details, please refer to the Scheme Information Document.
Asset Allocation
13
Under normal circumstances, the asset allocation of the Scheme’s portfolio will be as follows:
Types of InstrumentsMinimum
Allocation (% of Total Assets)
Maximum Allocation (% of Total Assets)
Risk Profile of the instrument
Corporate Bond (including Securitised Debt)#
80 100 Low to Medium
Government Securities and Money Market Instruments
0 20 Low
Units issued REITs and InvITs
0 10 Medium to High
#Minimum 80% of the total assets shall be invested in AA+ and above rated corporate bonds
(including securitised debt)
The scheme may invest in the schemes of Mutual Funds in accordance with the applicable extant SEBI (Mutual Funds) Regulations as amended from timeto time. The Scheme may invest upto a maximum 75% of the total assets in Foreign Debt Securities. The Scheme may invest upto 100% of its total assets inDerivatives.For further details, please refer to the Scheme Information Document.
Scheme Performance Summary
14
Value of Rs 10,000 invested
Scheme Returns (%)
Benchmark Returns (%)
#
Additional Benchmark
Returns (%) ##
Scheme (Rs)Benchmark
(Rs)#
Additional Benchmark
(Rs)##
Last 1 year 6.46 5.91 6.01 10,646 10,591 10,601
Last 3 years 7.86 7.79 6.80 12,549 12,526 12,184
Last 5 years 8.62 9.23 8.35 15,122 15,554 14,935
Since inception 8.62 7.99 6.43 20,218 19,237 17,002
Returns greater than 1 year are compounded annualized (CAGR). The above scheme has been managed by Anupam Joshi since October 27, 2015.The above returns are of Regular Plan - Growth Option. #CRISIL Composite Bond Fund Index. ##CRISIL 10 Year Gilt Index. Different plans viz. RegularPlan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of thedistribution expenses / commission charged in the Regular Plan. Returns as on 31st December, 2018.
15
Performance of other schemes managed by the Fund
manager (Top 3 & Bottom 3)
Scheme
Managing scheme since1 year
3 year 5 year
CAGR (in %) CAGR (in %)
Anupam Joshi manages 14 schemes
Performance of Top 3 schemes managed by Anupam Joshi
HDFC FMP 1190D March 2016 (1) Mar 23, 16 8.95 NA NA
CRISIL Composite Bond Fund Index 5.91 NA NA
HDFC FMP 1161D July 2016 (1) Jul 27, 16 8.21 NA NA
CRISIL Composite Bond Fund Index 5.91 NA NA
HDFC FMP 1128D June 2016 (1) Jun 29, 16 7.88 NA NA
CRISIL Composite Bond Fund Index 5.91 NA NA
Performance of Bottom 3 schemes managed by Anupam Joshi
HDFC FMP 1107D March 2016 (1) Mar 29, 16 7.09 NA NA
Crisil Composite Bond Fund Index 5.91 NA NA
HDFC FMP 1104D April 2016 (1) Apr 21, 16 7.07 NA NA
Crisil Composite Bond Fund Index 5.91 NA NA
HDFC FMP 1120D March 2016 (1) Mar 16, 16 7.47 NA NA
Crisil Composite Bond Fund Index 5.91 NA NA
Past performance may or may not be sustained in the future. The above returns are of Regular Plan – Growth Option. Load is not taken into consideration for computation ofperformance. On account of difference in the type of the Scheme, asset allocation, investment strategy, inception dates, the performance of these schemes is strictly notcomparable. Top 3 and bottom 3 schemes managed by the Fund Manager have been derived on the basis of returns since inception. In case the benchmark is not available on theScheme’s inception date, the returns for the concerned scheme is considered from the date the benchmark is available. Returns as on 31st December, 2018. Different plans viz.Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses/commission charged in the Regular Plan.
Taxation
Resident Individual/HUF Domestic Companies @ NRI$/#
Dividend Distribution Tax Applicable To Schemes Other Than Equity Oriented Schemes (Payable By The Scheme)
25% + 12% Surcharge + 4% Cess = 29.12%
30% + 12% Surcharge + 4% Cess = 34.944%
25% + 12% Surcharge + 4% Cess = 29.12%
Capital Gains Taxation Applicable To Schemes Other Than Equity Oriented Schemes
Long Term Capital gains(Units held for a period of more
than 36 months) Unlisted Units
20% with indexation + Surcharge as
applicable + 4% Cess = 23.92% or 22.88%
20% with indexation + Surcharge as
applicable + 4% Cess = 23.296% or 22.256%
10% without indexation and foreign
currency fluctuation benefits +Surcharge as applicable + 4% Cess
= 11.96% or 11.44%
Tax Deducted at Source Nil Nil 11.96% or 11.44%
Short Term Capital gains(Units held for a period of less
than 36 months)
30%^ + Surcharge as applicable + 4%
Cess = 35.88% or 34.32%
30% + Surcharge as applicable + 4% Cess25%^^^ +Surcharge as applicable + 4% Cess= 34.944% or 33.384%= 29.120% or 27.820%
30%^ + Surcharge as applicable + 4%
Cess = 35.88% or 34.32%
Tax Deducted at Source Nil Nil 35.880% or 34.32%^
16
^ Assuming the investor falls in the highest tax bracket. Surcharge as the rate of 7% for domestic corporate unit holders where the income exceeds Rs 1 Cr but less than Rs 10 Cr and therate of 12% where income exceeds Rs 10 Cr. Surcharge at 15%, is applicable where income of Individual, HUF, AOP, BOI, Artificial juridical person being unit holders exceeds Rs. 1 crore andsurcharge at 10% is to be levied in case of Individual, HUF, AOP, BOI, Artificial juridical person being unit holders where income of such unit holders exceeds Rs 50 lakhs but does not exceedRs. 1 crore.. Tax will be deducted at the time of redemption of units in case of NRI investors only. ^^^ If total turnover or Gross receipts during the financial year 2016-17 does not exceedRs. 250 crores.The information set out here is neither complete nor constitute as tax or legal advice. Due to the individual nature of taxation please consult your tax advisor before investing.
16
Disclaimer
This presentation dated 16th
January 2019 has been prepared by HDFC Asset Management
Company Limited (HDFC AMC) based on internal data, publicly available information and other
sources believed to be reliable. Any calculations made are approximations, meant as
guidelines only, which you must confirm before relying on them. The information contained in
this document is for general purposes only. The document is given in summary form and does
not purport to be complete. The document does not have regard to specific investment
objectives, financial situation and the particular needs of any specific person who may receive
this document. The information/ data herein alone are not sufficient and should not be used
for the development or implementation of an investment strategy. The statements contained
herein are based on our current views and involve known and unknown risks and uncertainties
that could cause actual results, performance or events to differ materially from those
expressed or implied in such statements. HDFC Mutual Fund/AMC is not guaranteeing any
returns on investments made in the Scheme(s). The data/statistics are given to explain general
market trends in the securities market, it should not be construed as any research
report/research recommendation. Past performance may or may not be sustained in future.
Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any
liability arising from the use of this document. The recipient(s) before acting on any
information herein should make his/her/their own investigation and seek appropriate
professional advice and shall alone be fully responsible / liable for any decision taken on the
basis of information contained herein.
Mutual fund investments are subject to market risks, read all scheme
related documents carefully.
17
Thank You
18
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