Fund Pick: HDFC Corporate Bond Fund is a consistent category outperformer

HDFC Corporate Bond Fund was launched in June 2010 and featured in the top 30 percentile of the corporate bond funds category in CRISIL Mutual Fund Ranking (CMFR) for four quarters through December 2020.
 
Assets under management of the fund grew from Rs 11,486 crore in April 2018 to Rs 29,880 crore in March 2021.
 
The fund manager, Anupam Joshi, has over 12 years of experience and has been managing it since October 2015. The fund’s investment objective is to generate income/capital appreciation through investments predominantly in AA+ and above rated corporate bonds.
 
Performance
 
The fund has consistently outperformed its peers (funds ranked under the corporate bond funds category in CMFR December 2020) over the trailing periods under analysis.
 
A sum of Rs 10,000 invested in the fund on June 29, 2010 (inception of the fund), would have grown to Rs 25,013 (8.84 per cent CAGR; compound annual growth rate) on April 22, 2021, compared with Rs 23,439 (8.19 per cent CAGR) for its peer group over the same period.

 
Duration management
 
In the last three years, the fund’s modified duration ranged between 1.63 years and 3.46 years, which worked out to 2.74 years on average, compared with 2.31 years for its peers. Its modified duration came down from 3.35 years in October 2020 to 2.63 years in March 2021.
 
Portfolio analysis
 
During the past three years, allocation to non-convertible debentures and bonds remained predominant, averaging 77.9 per cent followed by sovereign securities, which averaged 15.75 per cent. Exposure to money market securities (certificates of deposit and commercial papers) averaged 1.47 per cent.
 
The fund has been true to label by not taking exposure to securities rated below AA+ during the past three years. Exposure to the highest-rated debt securities (AAA/A1+) averaged 79.2 per cent during this period and exposure to corporate bonds rated AA+ averaged 0.2 per cent during the same period.
 
Allocation to government securities ranged between 3.7 and 29.6 per cent in the last three years. Exposure to cash and equivalents in the portfolio averaged 4.9 per cent.