The Only Rule Is Quality

Maneesh Dangi is no stranger to the winner's circle. This is the second time he has won a Businessworld Best Mutual Funds award. Last year, Dangi took the award for Birla SunLife's Retail Plan; this year, he has won it for the Institutional Plan (the lower expense ratio has been the reason the institutional plan scores higher than the retail plan). For the 33-year-old head of investments, fixed income, at Birla SunLife Asset Management Company (AMC), high quality in investments is non-negotiable.

Today, Dangi manages over Rs 40,000 crore for the fund house that he has been with since 2006. It is his ability to generate better returns than his competitors that sets him apart. 

On weekly risk-adjusted performance for aperiod of 18 months, the fund returned 7.16 per cent, a full percentage point above nearest rival, Templeton Floating Rate Super Institutional Fund (6.16 per cent). How has Dangi been able to manage such bolstering returns in an environment where floating rates do not appear to make any sense, especially in a regime where spreads continue to widen? 

"The big theme this year that made money is who had the shortest duration and could re-price the portfolio fastest," says Dangi. "Our view was that short-term rates will spike steeply and spread will broaden." Dangi and his team had paper with average maturity of less than 90 days to 40-50 days. This helped them re-price the portfolio every quarter, resulting in a consistent uptick in returns. 

Back in April 2010, this fund may have been earning 5.5-6 per cent, improving to 7 per cent in July, and then to 8 per cent in October. In December, it was 8.5 per cent. In April, Dangi had invested in 3-month certificates of deposit (CDs) at 4.4 per cent, which matured in June. In July, he invested in 6 per cent-CDs that matured in September; in October at 8 per cent; and finally again in January at 9 per cent.

"My expectation is that by March, rates will move up further — from 9.5 per cent in three-month paper to 10.25 per cent," says Dangi, who has only CDs in his portfolio. "HDFC is the only quality commercial paper (CP) that I have in my portfolio; all others are CDs. Liquidity is most important. If I have a view that rates will harden, I should be able to exit. If I don't have quality, I will not be able to exit."

Another reason the fund did better than peers is the exit load. "To cut volatility in the fund, we introduced a 50 basis points (bps) exit load in the past 7-8 months," says Dangi. "If I am earning more, large corporates may dump money on me for three days; I don't want that." What Dangi wants is for investors to stay with him for about two months; most stay around four, giving his fund stability.

Dangi sees cash levels and portfolio durations in his fund rising in the coming months. "My big view for 2011 is that in March, rates will be at their highest, and peak on the short-term side." So the strategy is to lengthen portfolio maturity, say, to six months or a year. The big trade for 7-8 months, he says, is to buy in March and forget it for four months. In other words, buy fixed maturity plans (FMPs) or ultra short-term bond funds.

mahesh(dot)nayak(at)abp(dot)in

(This story was published in Businessworld Issue Dated 28-03-2011)