Aditya Birla Sun Life Corporate Bond Fund Review: FD killer?

Aditya Birla Sun Life Corporate Bond Fund seems to be a consistent performer in the category. Continue reading to know the performance of the fund.

Aditya Birla Sun Life (ABSL) Corporate Bond Fund is a scheme that seeks to generate optimal returns with high liquidity through active management of the portfolio by investing in high-quality debt and money market instruments. The fund consists of 289 securities, which is quite high when compared to the category average of 87. It is benchmarked against Nifty Corporate Bond Index. In this post, we would be reviewing the fund from different angles that will help investors make better investment decisions.  

How does the fund perform?  

In order to understand the fund’s performance, we have compared its three-year rolling returns against its category average. The period of study ranges from December 2011 to November 2021.   

The above two graphs give us an idea about the performance of ABSL Corporate Bond Fund as against the corporate bond fund category. As can be seen in the first graph (graph no. 1), ABSL Corporate Bond Fund has consistently outperformed its category. There wasn’t any long underperformance as compared to the category average. In fact, it underperformed only 0.8 per cent of the time and the margin of underperformance on average was not more than 0.06 per cent.  

Let us now look at the performance of the fund against its category based on several parameters such as median, minimum, and maximum returns of three-year rolling returns (graph no. 2). The results are quite encouraging as the fund scored over its category average in terms of median as well as minimum returns and in the case of maximum returns, it just matched the performance of the category average. The good part is that, in any three-year rolling period, the fund has never generated returns less than 7 per cent.   

Note: The data used to calculate the performance of the fund and category is of the regular plan.  

How risky is the fund?  

In order to understand the risk undertaken by the fund against its category, we have assumed the maximum drawdown as the primary parameter. However, we have a holistic view. We have also compared its standard deviation, downside deviation, Sharpe ratio, and Sortino ratio with the category average.   

The above two graphs show the risk metrics of the fund alongside its category. In terms of maximum drawdown, ABSL Corporate Bond Fund has one of the lowest maximum drawdowns in the category. In the last 10 years, it only depicted drawdowns 35 per cent of the time whereas, the corporate bond fund category on average showed drawdown 37 per cent of the time.  

Moreover, its standard deviation and downside deviation are also less than its category, suggesting that the fund is better at containing the downside risk in the category. Even in terms of risk-adjusted returns as measured by Sharpe & Sortino ratios, the fund scores over category average.  

What are the asset allocation and investment strategies of the fund?  

Being a corporate bond fund, much of its assets are dedicated towards AAA-rated corporate debt instruments. This is followed by government securities and cash.   

The fund has dedicated around 73 per cent of the assets towards AAA-rated debt instruments, 15 per cent towards government securities, and 12 per cent in cash equivalents.  

The fund aims to identify securities, which offer superior levels of yield at lower levels of risks. As per the asset allocation pattern, the scheme invests in various debt securities and money market instruments issued by corporates as well as state & central government. With the objective of controlling risks, rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the asset management company (AMC).  

The credit evaluation includes a study of the operating environment of the company, the past track record, and the future prospects of the issuer along with the short as well as the long-term financial health of the issuer. The AMC is also guided by the ratings of the rating agencies such as CRISIL, CARE, and ICRA, or any other rating agency as approved by the regulators.  

In addition, the investment team of the AMC also studies the macro-economic conditions, including the political, economic, and environmental factors affecting liquidity & interest rates. The AMC uses this analysis to predict the likely direction of interest rates and position the portfolio. 

How does this fund fair on the concentration front?  

As of November 2021, the fund comprises 289 debt securities with higher weightage to the government’s Floating Rate Bond, Non-Convertible Debentures (NCDs) of L&T, Debentures of National Bank of Agriculture & Rural Development, etc.  

If we look at the fund on the concentration front, then indeed, it is quite diversified and free from any concentration risk. The top 10 holdings form only 19.6 per cent of the overall portfolio with only 3 per cent being the highest weightage given to the security.   

How is the fund manager? 

Presently, the fund is being managed by Kaustubh Gupta having industry experience of 12 years. He is managing this fund since April 2017. Along with this, he also manages other debt funds for the AMC. The average three-year trailing return generated by Gupta is 6.55 per cent. However, this also includes liquid funds and overnight funds, which are cash equivalents. So, if we exclude those funds, then the fund manager generated three-year trailing returns of 7.1 per cent.