Think BIG : Think Retail Debt
All Weather Fund

Think of the learning curve all of us have gone through over the last 15 years in selling equity funds to retail investors. We have seen different sectors lead each bull market - whether it was tech in 1999-2000 or infrastructure and realty in 2006-2008. Keep aside these big moves - even during more "normal" times, we see huge divergences in sector returns from time to time and we see sector rotation at play almost all the time. Even in the last couple of years, defensives have performed handsomely while cyclicals have suffered in comparison. Increasingly, there now is a view that cyclicals might outperform defensives going forward in 2013. If that weren't enough, we also see styles playing out differently - we see some phases where growth investing is a rewarding experience and others where value investing delivers superior returns.

The market place offers funds that play to almost every specific theme, sector or style that exists in the equity market. It is your and your clients' call to choose which theme you want to invest in and when you think is a good time to exit that theme, in favour of another, that looks more promising than the one you are currently invested in. There are advisors who follow an active management strategy and who strive to deliver alpha over the market by making such informed choices for their clients.

Over time however, most of us in the advisory space have come to recognise that active advisory is not for all - be it advisors or investors. A typical retail investor is perhaps best served by a diversified equity fund which promises to scan the environment for the best opportunities that exist at that point of time, and invest in them, in a bid to deliver alpha. By choosing a diversified equity fund for retail investors, you are effectively choosing an all weather fund - whatever be the prevalent state of the market, the fund manager is tasked with picking the right stocks that he thinks will deliver superior returns. By choosing an all weather fund, you are completely moving away from a discussion on sectors and themes with your clients and focussing on investing systematically in an all weather fund to help him achieve his financial goals - and leaving it to the fund manager to invest where he sees the best opportunities from time to time.

The bond markets offer pretty much the same level of diverse opportunities - each of which has its day in the sun. You have times when duration is the name of the game - when you expect long bond yields to come down. You have times when the short end of the curve offers the best opportunities. You have times when corporate spread compression is the best play in town. You have other times when riding the ratings curve is the name of the game in the fixed income market. And you also have time when liquidity is king - when overnight returns are better or on par with 10 year yields.

Just as we have seen in the equity market, the fixed income funds market too offers a wide bouquet of funds - each that plays to a unique theme. You have liquid funds, short term plans, FMPs, corporate bond funds, credit opportunities funds, PSU bond funds, medium term plans, income funds, gilt funds - the list is endless.

Just as with the equity market, you can choose an active advisory role - and try and get your clients into the right theme at the right time - and importantly, out of them at the right time as well. If however, we learn from our equity experience, prudence suggests that for retail investors, we choose the fixed income version of an all weather fund - which is the Dynamic Bond Fund category. The mandate given to a manager of a dynamic bond fund is somewhat similar to what you give to a manager of a diversified equity fund - not in terms of the asset class, but in terms of a wide enough mandate to pick opportunities from all over the asset class which he thinks are attractive from time to time.

By getting your retail investors to buy into all weather funds like Dynamic Bond Funds, you are effectively moving away from taking calls on which segment of the bond market looks most attractive - and instead focussing on getting your clients' asset allocation right - and leaving the choice on bonds to the fund manager. If history were to repeat itself, we might just see increasing flows of retail money into pure long duration funds - like income funds and gilt funds - in a bid to maximise gains from an expected bond bull market. Its akin to betting on a hot sector fund in an equity bull market.

Its time for advisors like you to take an important call now : will you get retail clients into long duration funds now and take the responsibility of making a well timed exit as well, or would you rather advice them to get into all weather Dynamic Bond Funds, allow them to capture the likely gains from a rate cut cycle, but give them some protection against the twists and turns of the market, by giving the fund manager enough room to navigate through choppy waters.

Just as we have all learned the benefits of investing systematically in diversified equity funds, its perhaps time we fully embrace a similar strategy on the fixed income portion of our clients portfolios - by embracing a systematic investing approach in all weather bond funds.

A real life example of a Dynamic Bond Fund at work



To know more about Reliance Mutual Fund's all weather bond fund, Click Here

Opening Bat Cash flow All Weather Fund Inflation Buster

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