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Rates likely to be high even after next quarter

Rates likely to be high even after next quarter
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First Published: Tue, Nov 08 2011. 10 24 PM IST

Ritesh Jain, Head (investments), Canara Robeco Asset Management Co. Ltd
Ritesh Jain, Head (investments), Canara Robeco Asset Management Co. Ltd
Updated: Tue, Nov 08 2011. 10 24 PM IST
When Ritesh Jain, head (investments), Canara Robeco Asset Management Co. Ltd, joined as the head of fixed income in April 2008, the erstwhile Canbank AMC (one of India’s oldest fund houses) had just inducted the Netherlands-based Robeco Asset Management as a joint venture partner. Jain was part of the new team given the mission to turn around Canara Robeco AMC. Three years down the line, the team has tasted success—it is one of the rare cases of a successful partnership between a government-owned fund house and an international fund house. Among his strategies for debt funds, Jain embodies active management to withstand debt market volatility.
Ritesh Jain, Head (investments), Canara Robeco Asset Management Co. Ltd
You are known as a debt market specialist and now you have been appointed to head the entire investments department at Canara Robeco AMC. How do you marry the two responsibilities? Do you have the power to strike down decisions taken by your equity fund managers?
We work as a team. I have always been a macro person and my team is good at the bottoms-up approach of picking good quality companies. We also have a well defined investment process. At the end, we have to deliver to investors and every team member knows where he can contribute.
What’s your view on interest rates? Is this a good time to buy long-term bond funds?
I still think that we are sometime away when risk-return will favour adding long duration bonds. No doubt growth is slowing, but stubborn inflation and deteriorating government fiscal situation still demand caution. We believe the highest rated corporate bonds will deliver better returns over government bonds because corporate balance sheets are underleveraged as compared with that of the government.
The average maturity periods of your long-term bond funds are lower than many other debt funds. Aren’t you expecting interest rates to fall any time soon?
We don’t expect interest rates to fall any time soon simply because any slack in corporate credit uptake will be more than offset by increased government demand for money. At best, interest rates can peak out in next one quarter. Even after that they are likely to stay elevated for some time.
Your fund house doesn’t launch many fixed maturity plans (FMPs)? Why?
As a fund house, we are focused on being identified as an active asset manager. This ideology is reflected in our product range. FMPs are an important product category but we launch them selectively based on investor appetite and investment environment.
Value Research recently classified Canara Short Term Fund as an ultra short-term (ST) fund and its star ratings, therefore, fell. Do you reduce its duration/maturity levels to an ultra ST fund level? How do you monitor this?
Canara Robeco Short Term Fund follows a blend of accrual and alpha strategy on the shorter end of the yield curve. While the product is positioned to take advantage from the current high yields in the market, it also provides for any capital appreciation opportunities available in the market. Within the accrual strategy, the securities are invested with a HTM (hold till maturity) objective without active churning; this lowers the duration over time. Thus, there is no conscious decision to bring the maturity profile to ultra ST fund levels.
Why doesn’t your gold monthly income plan (MIP) invest in equities? Quite a few such MIPs invest across equity, gold and debt?
The asset allocation of Canara Robeco InDiGo (INcome from Debt Instruments and GOld) Fund provides for investment in debt instruments and gold only. Gold and equities are volatile and moving asset allocation between these two along with fixed income is tough. Hence, we decided to pursue an alpha strategy in gold with fixed income allocation to render stability to the entire portfolio. We were clear that the product is targeted for a conservation/moderate risk profile investor. Thus, combining equities and gold would have increased the investor’s risk profile.
Do you think this is still a good time to buy gold? Analysts say it appears to be overheated.
We have to first understand that its not that gold prices are going up. It’s the value of currencies which is coming down. Every asset class goes through a bull and bear cycle. We are in a bear cycle for currencies and bull cycle for hard commodities, including gold. Gold bull market will end when everybody is invested in gold. Today less than 1% of global wealth is invested in gold. it always ends with a mania which I believe would be three-four years down the line. We expect gold prices to touch at least $3,000 (Rs14,8140) before we can even think about calling an end of the gold bull cycle.
How important is it for an MIP of a mutual fund to give monthly dividends? Do you take steps to ensure you don’t skip dividends?
Investors look at MIPs with the expectation of monthly dividends. We have been focused on delivering steady monthly dividend track record to our investors by following a conservative strategy on the equity side and accrual strategy on the fixed income side. This approach helps us maintain composure in our portfolio even during turbulent times.
Do you find it a challenge to sell liquid funds and ultra ST funds through bank-based distributors, such as your sponsor bank? There’s a feeling that banks rather sell fixed deposits or saving bank accounts than liquid funds. How do you work around that?
In an environment where every bank is fighting to maintain its Casa (current account, savings account), it is a challenge for mutual funds to attract that money in liquid funds. We sell either equity or asset allocation products through the banking channel.
kayezad.a@livemint.com
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First Published: Tue, Nov 08 2011. 10 24 PM IST
More Topics: Interest Rates | RBI | Debt | Markets | Banks |