In July 2016 risk on trades took Indian bond yields down.Government bonds at the long end of the yield curve took strong positive cues from the sharp fall in bond yields globally, with bond yields of many countries falling to record lows post Brexit.Fall in government bond and corporate bond yields has led to a strong performance in our Model Fixed Income Growth Portfolios.
Fixed Income Growth Portfolio (FIGP)
We have constructed two FIGP portfolios, one with fixed income securities and one with mutual fund fixed income schemes.
Since inception on 29th November 2013 the fixed income securities portfolio has generated absolute 34.86% returns, annualized to 12.95%. On rebalancing the portfolio on 5th January 2016, the portfolio has given absolute 8.33% returns, annualized to 14.14%.
In January FIGP was rebalanced based on our Fixed Income Investment Strategy Report for 2016. We sold all the securities, which were all government securities and added 3 corporate bonds and 9.20% 2030 Gsec each having 25% weight in the portfolio. Table 1 gives the FIGP with fixed income securities. The FIGP portfolio has 8.44% REC 2021,8.40% Powergrid 2026,8.95% Bajaj Finance 2020 and 9.20% 2030 Gsec with weight of 25% each. Currently the portfolio has a weighted average yield of 8.09% and an average maturity of approximately 8.3 years.
Table 2 gives the rebalanced FIGP with mutual fund schemes. We have included high yield funds apart from short term and long term income fund schemes and long term gilt fund schemes with 25% weight each in the portfolio. The weighted average yield of the portfolio post expenses is 7.40% while the average maturity of the portfolio is 8.32 years. The mutual fund portfolio carries interest rate and credit spread risk with low risk of credit default.
Since 29th November 2013 the portfolio has generated absolute 34.35% returns, annualized to 12.76%. On rebalancing the portfolio on 5th January 2016, the portfolio has given absolute 8.62% return, annualized to 14.64%.
We are constantly monitoring the portfolios and will put out changes if any depending on changes in market conditions.Read our analysis on Where to Position on the Yield Curve and Credit Curve? Fixed Income Investment Strategy for 2016