Morningstar: Mutual Fund Guide

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Morningstar: Mutual Fund Guide
Morningstar: Mutual Fund Guide
Morningstar India - 05 February 2022

HDFC Short Term Debt Fund

Investment Strategy

HDFC Short Term Debt benefits from seasoned manager Anil Bamboli’s investment style, which focuses on keeping risks at bay. The basic premise is to offer a true-label short-term fund and to optimise returns without exposure to  extensive credit risk.

Bamboli seeks to add value through security selection rather than taking duration bets as it is typically maintained within the fund’s defined investment mandate. The investment approach relies on fundamental research. It entails combining qualitative aspects with quantitative analysis. The investment team prepares the coverage list with a strong focus on company management and track record, financial strength of the promoter group, and corporate governance standards. Meetings with management are followed by rigorous quantitative analysis in which the focus is to get a measure of the company’s creditworthiness. The team studies the company’s cash flow and relevant ratios—leverage, coverage and solvency. At this step, the team also draws on the expertise of the equity team. The fund uses a proprietary model in which qualitative and quantitative inputs are used to arrive at a credit score for each issuer. This, in turn, helps the managers determine the exposure they can take to each issuer, thereby acting as a risk-management tool —for the individual portfolio and the fund company as a whole.

Bamboli places significant emphasis on safety and liquidity while constructing the portfolio. Bamboli has typically invested in highly rated (often AAA) papers of strong and stable private sector companies and papers issued by public-sector undertakings. Further, in-depth understanding of companies has helped the team identify securities offering attractive spreads.

UTI Flexi Cap Fund

Manager Biography And Fund Strategy

UTI Flexi Cap (erstwhile UTI Equity), launched in 1992, is one of the oldest funds in the Indian mutual fund industry. Fund manager Ajay Tyagi has worked for the company for more than two decades. He is backed by a large and a stable equity team that has nine portfolio managers and nine analysts (including the head of research).

The fund has a strong investment culture driven by a well-defined investment process with a methodical and cohesive approach. The fund focuses on investing in high-quality companies that have a high return on capital employed and can generate a lot of free cash flow. The fund witnessed a change in category (to flexi cap) in 2021 but its positioning remains unaltered. The investment process determines firms that have generated higher operating profits and demonstrated long-term return on equity. The team emphasises on the trends from historical performance rather than from forecasts. From a qualitative aspect, it focuses on management quality, business model, and competitive advantages.

When it comes to stock selection, the team follows a bottom-up strategy, focusing on quality, growth, and pricing. It avoids highly volatile cyclical industries and searches for companies with a solid track record of earnings growth over the past five to 10 years, stable margins, and the ability to compound earnings higher than the market over the next five to 10 years with high predictability. The investment process has been consistently plied, and the strategy mandate is in sync with Tyagi’s investment style.

The fund has a diversified portfolio of roughly 50-55 stocks, which is more than the category’s median count. We like the buy-and-hold investment approach of the manager; at least 80 per cent of the stocks in the portfolio have been there for five years or more. The turnover ratio of about 15 per cent as of 2020 demonstrates the manager’s patience and conviction in the outcomes of the investment process.

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