ABSL AMC's Bhupesh Bameta beats benchmark with a highly liquid portfolio

Financial markets are full of surprises, and one needs to have humility and the ability to quickly learn and unlearn, says Bhupesh Bameta, who has been selected as the Business Standard Fund Manager of the Year in the Medium- to Long-Duration Debt category.

Bameta is a fund manager and an economist with Aditya Birla Sun Life Asset Management Company (AMC) and manages the Aditya Birla Sun Life Income Fund. His fund has delivered a return of 6.91 per cent for the 12-month period ending September 2021, compared to the scheme’s benchmark index return of 5.83 per cent.

An engineering graduate from IIT-Kanpur, an all-India Rank 1 in Graduate Aptitude Test in Engineering, he also holds the CFA Charter (USA).

The fund manager had kept the portfolio highly liquid, which enabled him to respond swiftly to the evolving macro and market conditions in the last one year.

The core strategy of the fund is to quickly react to emerging macros, and swiftly and actively position the portfolio on duration and spreads. It is a medium- to long-term duration fund that invests in government securities, state development loans (SDLs), public sector undertakings (PSUs) and AAA-rated corporate bonds.

During the crises of Covid-19, Bameta had evaluated that the central banks globally would continue to support growth for a much longer period than during the Global Financial Crisis (GFC) of 2008 and had positioned his fund accordingly.

“We assessed that (policy) rates would go down and liquidity would remain surplus for a prolonged period (unlike during GFC when the policy reversal came quickly) creating a chase for yields and contraction of spreads. Hence, early in the pandemic, we increased our duration of the portfolio and raised exposure to SDLs and AAA-rated corporate bonds to gain from our expectation of spread contraction,” says Bameta.

Medium- to long-duration funds are expected to invest in debt and money market instruments with Macaulay duration of the portfolio between four and seven years. In very simple terms, Macaulay duration gives the time (in years) in which the investor will be able to recover the price of the bond paid in the form of interest payments and principal repayment.

Following the deadly Delta wave in April-July 2021, Bameta assessed that the enhanced level of natural immunity in the Indian population achieved due to high infections in the Delta wave would prevent an immediate third wave and positioned the fund for gradual policy normalisation.

Given the improving economic growth and rising inflation, there is no debate that interest rates will go up from current levels. However, Bameta expects a gradual pace of policy normalisation from the central banks, including the Reserve Bank of India (RBI) so as not to disrupt the nascent economic recovery.

“Markets have positioned themselves for a somewhat aggressive rate hike cycle as reflected in the swap market and the steep yield curve, but our sense is that central banks will surprise markets on the dovish side,” says Bameta. The RBI will support growth as much as possible within the inflation constraints, given that recovery remains uneven and dependent upon continued policy support, he adds.

The thinking and strategy seems to be paying off. In the recent RBI monetary policy, the Monetary Policy Committee voted unanimously (5:1 ratio) to maintain status-quo with regard to the policy repo rate and continued to retain the “accommodative” stance.