The new Invesco India Income + Arbitrage Active FoF has opted for a core and satellite approach to shaping the actively managed debt component of upto 65% of fund portfolio.
Core of 40-50% out of a maximum of 65% will be deployed in their Corporate Bond Fund, which has 80% of its portfolio in AAA corporate bonds and can take upto 20% tactical duration bets in gilts. Gilt duration is managed dynamically based on market conditions.
Satellite portion of 15-25% will be deployed as per market conditions in their short/ultra short term fund at one extreme and their gilt fund at the other extreme. Satellite exposure can be lower than this range if market conditions are neutral.
The idea of this core and satellite approach is to blend a healthy dose of stability with a much smaller dose of alpha seeking duration plays to enable smoother investment outcomes for fund investors.
Vikas is very bullish on growth prospects for this relatively new fund category and sees a distinct possibility of it emerging over time as the preferred retail debt fund for Indian savers.
Since the profile of investors the industry is seeking to court with this new product category are savers who have hitherto invested in traditional fixed income instruments, it is important to ensure that funds in this category don’t get very aggressive with their active calls which can cause more volatility in returns.
Equally important is to ensure that fund communication remains in sync with fund management style, which ideally should put safety and lower volatility ahead of return maximization.