Axis MF has launched its US Treasuries Dynamic Bond FoF which will dynamically invest across 4 UST focused ETFs of varying durations (including one which offers inflation protection).
UST yields at 5% are at a 15+year high and multiple datapoints indicate that yields should start softening in 2024 – perhaps by as much as 150 bps over next 12-15 months.
Devang expects to maintain duration of this fund around 7years to take advantage of this expected drop in yields.
If yields drop 100bps at the long end as Devang expects, investors can look forward to perhaps 7% capital appreciation and a further 3%accrual, thereby targeting 9-10% US dollar denominated return over the next12-15 months. This does not factor in currency depreciation (or appreciation) and its impact on net returns in INR terms.
Being a FoF, Indian HNIs need not use their LRS limit of$250,000 and will also not suffer 20% TCS.
Apart from this representing a smart tactical bet, Devang believes the dynamic management of duration offers a good USD denominated debt option for people planning medium term dollar outflows (like children’s higher education).