Fund Pick: IDFC Dynamic Bond has consistently outperformed its peers

Duration management gains

Launched in December 2008, IDFC Dynamic Bond Fund featured in the top 30 percentile of the dynamic bond funds category of CRISIL Mutual Fund Ranking (CMFR) in the three quarters ended June 2019. Suyash Choudhary has been managing the fund since October 2010. The fund’s investment objective is to generate optimal returns by active management of the portfolio by investing in debt and money market instruments across maturities.

Trailing returns

The fund has consistently outperformed its peers (funds ranked under the dynamic bond funds category in CMFR June 2019) across the past six months, and one-, two-, three-, five-, seven- and 10- year trailing periods. It also outperformed the benchmark (CRISIL Composite Bond Fund Index) in the past 6 months, one-, three-, five-, seven- and 10- years trailing periods.

A sum of Rs 10,000 invested in the fund on December 3, 2008 (inception of the fund), would have grown to Rs 23,766 (8.40 per cent CAGR) on August 13, 2019, compared to Rs 22,472 (7.90 per cent CAGR) for the peer group and Rs 23,317 (8.20 per cent CAGR) for the benchmark.

Portfolio analysis

The fund has been true to its name in actively managing duration in the past three years. Its modified duration ranged from 2.1 years to 8.4 years during the period under analysis. 

In November 2016, when sovereign yields of the corresponding maturity declined about 59 bps, the fund increased modified duration from 5.61 years in October 2016 to 8.38 years in November 2016 to benefit from the decline in yields. Similarly, when sovereign yields moved up from 6.91 per cent in August 2017 to 8.33 per cent in September 2018, the fund reduced its modified duration from 6.98 years to 3.25 years to reduce the impact of rising yields on the fund’s performance. When sovereign yields declined further by almost 150 bps to 6.84 per cent in July 2019, the fund increased duration from 3.25 years to 5.76 years to benefit from the falling yields.

During the past three years, the fund maintained a predominant allocation to sovereign securities, averaging 75.86 per cent. The allocation to NCD and bonds averaged 19.41 per cent, while money market instruments’ exposure averaged 3.64 per cent during this period. 

With a predominant allocation to sovereign securities, the fund has been conservative in managing the credit risk exposure of the portfolio in the past three years. Exposure to corporate bonds was confined to the highest-rated instruments (AAA), averaging 19.41 per cent during this period.