SBI Magnum Medium Duration Fund: Active management of credit risk, duration

Launched in November 2003, SBI Magnum Medium Duration Fund featured in the top 30 percentile of the medium-duration category in CRISIL Mutual Fund Ranking (CMFR) for the seven quarters ended December 2020. The month-end assets under management of the scheme increased from Rs 1,659 crore in February 2018 to Rs 7,996 crore in February 2021.
 
Dinesh Ahuja has over 20 years of experience and has been managing the fund since July 2011. The fund’s investment objective is to provide investors an opportunity to generate attractive returns with moderate degree of liquidity through investments in debt and money market instruments, such that the Macaulay duration of the portfolio is between 3 years and 4 years.
 
Consistent performance
 
The fund has consistently outperformed its peers (funds ranked under the medium duration funds category in CMFR in December 2020) over the trailing periods under analysis. It significantly outperformed its peers during the 2-year and 3-year trailing periods.
 
A sum of Rs 10,000 invested in the fund on November 12, 2003 (inception of the fund) would have grown to Rs 38,867 (8.13 per cent CAGR) on March 18, 2021, compared to Rs 32,376 (7 per cent CAGR) for the peer group during the same period.
 
Duration management
 
The fund maintained modified duration in the range of 1.7 years to 3.7 years during the past 3 years, averaging 3 years. In recent months, the fund reduced its modified duration from 3.7 years in October 2020 to 2.6 years in February 2021, thereby reducing the interest rate sensitivity of the portfolio.

 
Portfolio analysis
 
During the past three years, the fund maintained predominant allocation to NCDs (non-convertible debentures) and bonds, averaging 67.81 per cent, followed by sovereign securities, averaging 23.56 per cent. Exposure to money market securities (CDs and CPs) averaged 0.55 per cent during the same period.
 
The fund has actively managed its credit risk exposure over the past three years. During recent months, the fund has adopted a conservative approach towards its credit profile. Exposure to the highest-rated debt securities (AAA/A1+) increased from 9 per cent in August 2020 to 24.28 per cent in February 2021. Allocation to A and below-rated debt securities declined from 23.4 per cent in February 2019 to 1.93 per cent in February 2021. The fund’s exposure to AA-rated debt securities has ranged between 20.24 per cent and 46.47 per cent in the past 3 years. Since mid-October 2020, the fund has been increasing allocation to cash and equivalents from 1.62 per cent in mid-October 2020 to 19.84 per cent in February 2021.