A bit more daring than its peers, and that's OK.
This fund stands out from its ultrashort bond category peers in numerous ways. The investment team at Franklin Templeton focuses on underpriced money market instruments and bonds, seeking to add value by identifying securities that have improving or strong credit fundamentals. Thus, the fund typically has a slightly more credit-sensitive portfolio than a typical peer.
The investment team has skilfully controlled the credit risk. Manager Pallab Roy runs the fund with the support of a five-member team headed by CIO Santosh Kamath. The vast experience, stability, and resources in the team, with all members engaged in credit research, make it one of the best in the Indian fixed-income universe. The team has successfully avoided pitfalls in the past, noticeably 2008, by avoiding risky real estate debt when it was the norm to invest in such issues. There is a contrarian approach in the investment process, with bets often taken against the grain so long as the risk/reward is favourable. Although a wrong bet can lead to significant underperformance, we believe the research-intensive approach helps with such a process.
However, the team does not discount downside risks. It recognises credit and liquidity risk in a portfolio, especially in a fund such as this where there are substantial inflows and outflows. While it relies on its research strength to mitigate credit risk, which involves rigourous qualitative and quantitative analysis to gauge the creditworthiness of companies, it heeds portfolio construction and conducts regular stress tests to pre-empt other downside risks, particularly that of liquidity in the portfolio.
What also adds to this fund's appeal is its low expense ratio, a deviation from other funds from the fund house, which are on the expensive side. Its current expense ratio of 0.30% makes it one of the least expensive funds in the category. As well, a strong track record, prudent management, and an able steward in Franklin Templeton make this fund a compelling offering.
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