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Events over the past 2-3 years have been testing for the markets. If, in the aftermath of Covid-19, markets had a problem of plenty and chased yields; the period since February 2022 has seen a complete reversal in sentiment with markets looking for a place to hide. And even as the world economies were coming to terms with these two shocks, the global economy is in the eye of a new storm - arising from aggressive monetary policy actions and even more aggressive communication from advanced economy central banks.
In such an era of volatility, where does one invest? In times of extreme pessimism and volatility, natural human tendency will probably point to a buy and hold-to-maturity (HTM) passive investment allocation. However, our analysis suggests that in times such as these, actively managed strategies are most likely well-positioned to deliver superior returns as compared to passive fund strategies.
To illustrate our analysis, we have compared the ex-post 3-year annualized return of CRISIL Dynamic Bond Fund AIII Index (active strategy) with the 3-year generic yield on a AAA rated Public Sector bond (passive strategy). As per the PRC matrix, “A” signifies the portfolio as having the highest credit quality, while “III” signifies that the portfolio Macaulay duration can be flexible and unconstrained.
2 macro events over the last 10 years come to our mind as case studies.
Case Study 1 – Taper tantrum period (April 2013 – March 2014)
This was the period during which the US Federal Reserve gave indications of a tapering of its quantitative easing (QE) program which was implemented in the aftermath of the 2008 global financial crisis. India was clubbed in the Fragile 5 group of countries and bore the brunt of the markets.
Source: Bloomberg, AMFI, CRISIL, RBI
The above is only for analysis purpose to explain context of the note. Past performance may or may not be sustained in future.
Case Study 2 – Crude Oil spike and credit event period (April 2018 – March 2019)
This was the time during which India faced headwinds led first by sharp increase in oil prices, followed by the IL&FS default-led credit crises.
Source: Bloomberg, AMFI, CRISIL, RBI
The above is only for analysis purpose to explain context of the note. Past performance may or may not be sustained in future.
Active portfolio management @ ITI Mutual Fund
Below is an illustration of active duration management in our flagship duration funds viz. ITI Dynamic Bond Fund and ITI Banking & PSU Debt Fund. The yield movement of a 3-year AAA-rated public sector unit bond against these funds’ modified duration is shown for comparison.
The above is the performance of ITI Dynamic Bond Fund – Direct Growth plan versus the CRISIL Dynamic Bond Fund AIII Index (Benchmark Index). The data series is rebased to 100 and is for the period from July 2021 (fund inception) till October 2022.
The above is the performance of ITI Banking & PSU Debt Fund – Direct Growth plan versus the CRISIL Banking & PSU Debt Index (Benchmark Index). The data series is rebased to 100 and is for the period from October 2020 (fund inception) till October 2022.
The above is given only for analysis purpose to explain context of the note. Please refer performance of the scheme captured in the later part. Past performance may or may not be sustained in future.
The above table shows the calendar year, YTD Oct 2022 and the average return over this period.
For performance of other schemes managed by the Fund Manager, kindly refer to the factsheet - https://itiamc.com/admin/pdf/1668144488-ITI_MF-FACTSHEET-October_2022.pdf
