L&T Income Opportunities Fund(An Open Ended Income Scheme)May 2013
Current Market Environment
Growth slowdown accompanied by falling oil, gold and inflationModerating inflationFalling crude pricesSharp correction in ...
Key Policy Rates and YieldMovementRate30-Mar-1229-Jun-1228-Sep-1231-Dec-1215-May-13ChangeSince Mar-123 months CD 10.70 9.0...
Bond markets celebrate…• Short term as well as medium term corporatebond yields have come off significantly• Lower credits...
Why consider an accrual fund in such a scenario?This is for illustrative purpose only and should not be construed as advic...
High accrual fund could form the core of investor’s portfolio Given the current positive bond market environment, relativ...
Click to edit Master title styleL&T Income Opportunities FundA high accrual fund with a unique proposition
L&T Income Opportunities Fund An open-ended income scheme investing predominantly in corporate debt instruments Current ...
High accrual fund, with a focus on the infrastructure sector Increased infrastructure funding needs across sectors such a...
Product Positioning (for illustrative purposes only)onlyHigh yield medium termfunds / Credit opportunitiesfundsaggressive ...
Indicative strategyAsset Type Infrastructure sector Infrastructure sector Infrastructure sectorHigh yieldingsecurities in ...
Theme 1 – L&T IDPL’s road project L&T IDPL is a 97% subsidiary of L&T Ltd and engaged in developing various infrastructur...
Theme 2: Co-investment with L&T infra financeA large corporate groupSubsidiary companyA group company engagedin power grid...
Theme 3: Frontline infrastructure company withstrong parentage – ITNL Strong Parentage of IL&FS Ltd (AAA rated by CARE, F...
Why L&T Income Opportunities Fund?Active, but not tradingoriented approach• Exit load for 2 years ; Stable flowshelp reduc...
Particulars DescriptionScheme name L&T Income Opportunities FundCategory Open ended Income SchemeBenchmark CRISIL Short Te...
18Investment Process – GEM - 3 stage processGeneration ofideasManufacturingandmonitoring ofPortfoliosViews● Top-down● Bott...
BiographyShriram Ramanathan• Funds Managed / Co-ManagedL&T Liquid Fund, L&T Ultra Short Term Fund, L&T Low DurationFund, L...
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.Disclaimer: This presenta...
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Lt income opportunities fund presentation

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LnT Mutual fund has brought out every aspect under the command on the table. Investor with interest in Debt Fund should give close look and invest

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Lt income opportunities fund presentation

  1. 1. L&T Income Opportunities Fund(An Open Ended Income Scheme)May 2013
  2. 2. Current Market Environment
  3. 3. Growth slowdown accompanied by falling oil, gold and inflationModerating inflationFalling crude pricesSharp correction in gold pricesGrowth slowdownGrowth slowdown coupled with moderating inflation could stimulate further policy rate cutsSource: Bloomberg, Gold and Crude prices data as on 15th May 2013.
  4. 4. Key Policy Rates and YieldMovementRate30-Mar-1229-Jun-1228-Sep-1231-Dec-1215-May-13ChangeSince Mar-123 months CD 10.70 9.05 8.40 8.49 8.07 -263 bps6 months CD 10.50 9.30 8.67 8.73 8.18 -232 bps1 year CD 10.15 9.52 8.92 8.82 8.41 -174 bps10 year G-sec 8.54 8.18 8.15 8.05 7.46 -108 bpsRepo Rate 8.50 8.00 8.00 8.00 7.25 -125 bps• RBI has cut repo rates thrice in this calendar year,with a cumulative cut of 75 basis points• Despite somewhat hawkish rhetoric in the May 3policy, we expect the RBI will respond with 50-75bps of rate cuts over the next 3-6 monthsSource: Bloomberg, as on 15th May 2013.Will RBI play along?
  5. 5. Bond markets celebrate…• Short term as well as medium term corporatebond yields have come off significantly• Lower credits adequately compensating for theadded riskSource: Bloomberg. Data as on 15-May-13
  6. 6. Why consider an accrual fund in such a scenario?This is for illustrative purpose only and should not be construed as advice to subscribe to the schemes of L&TMutual Fund. Please consult your financial advisor before taking any investment decisions.The above calculations are based on various assumptions given in the assumptions table above and the actual performance may vary depending on the market conditions andactual change in the shape of the yield curve. For roll down calculation, the yield spread for duration fund is assumed to be 10 bps whereas for the accrual fund, it is assumedto be 50 bps. Change in yields assumed to occur over first year, with yields steady in year 2.Over a two year investment horizon, in the aforesaid illustration, accrual fund A delivers significantly better total returnsthan duration fund B in each of the above scenarios. Reinvestment risks will become much more important given the lowlevel of interest ratesAssumptions
  7. 7. High accrual fund could form the core of investor’s portfolio Given the current positive bond market environment, relatively aggressive investors could lookfor tactical allocation to duration products, provided they are comfortable with the volatility Products such as fixed maturity plans and conservative short term income funds have becomerelatively less attractive on account of lower bond yields On the other hand, elevated credit spreads provide an attractive opportunity to invest in wellresearched credits As a result, it may be advisable to increase allocation to higher yielding, accrual-orientedproducts to boost overall yield of your portfolioA high yielding, accrual fund with a balanced risk-reward approach as a coreinvestment in a portfolio, with tactical allocation to long duration bond funds
  8. 8. Click to edit Master title styleL&T Income Opportunities FundA high accrual fund with a unique proposition
  9. 9. L&T Income Opportunities Fund An open-ended income scheme investing predominantly in corporate debt instruments Current Strategy Focus on yield enhancement through measured exposure to high yielding securities• Focus on infrastructure sector: Leveraging on the expertise of L&T group in terms ofproject execution and project financing, as well as industry knowledge and sourcingabilities Rigorous credit selection process to spot mispriced credit opportunities Accrual-based, yield-enhancement strategy A medium term debt fund with maximum average maturity of 3 years An attractive investment option for investors with 2-3 year investment horizon
  10. 10. High accrual fund, with a focus on the infrastructure sector Increased infrastructure funding needs across sectors such as roads, power, telecom, ports,hospitals, etc As a result, debt securities issued by infrastructure companies offer attractive yield spreadsover high quality bonds However, a large number of infrastructure companies have weak balance sheets on accountof high leverage and poor cash flows Hence, rigorous credit selection process is extremely important to choose mispriced credits inthe infrastructure sectorL&T group’s expertise in infrastructure project execution and financing coupledwith our strong in-house credit research capabilities gives us a solid advantagewhile investing in the sector
  11. 11. Product Positioning (for illustrative purposes only)onlyHigh yield medium termfunds / Credit opportunitiesfundsaggressive short term funds,medium term FMPs, mediumterm open-ended debt fundsLong term bond funds, Long-dated government securitiesfundscash / liquid / ultra short termfunds / floating rate fundsconservative short termfunds, High credit qualityFixed maturity plans, short-dated government securitiesfundsMaturity / durationYieldLow Medium HighLowMediumHighL&T IncomeOpportunitiesFundFor liquiditymanagement needs,temporary parking ofsurplus fundsCore / strategic fixedincome holdingsTactical allocation toplay interest rate cycle
  12. 12. Indicative strategyAsset Type Infrastructure sector Infrastructure sector Infrastructure sectorHigh yieldingsecurities in AA andA categoryAAA /AA SecuritiesType ofcompanyFully operational projectsas well as companybalance sheet fundingProjects owned by L&TIDPL or other L&T groupentitiesBalance sheet funding ofgood quality, infrastructureoriented companies /SPVsBalance sheet funding ofcompanies acrosssectors, including NBFCs,retail, auto and autoancillary etc.May also include singleloan PTCs and retail ABS /MBS transactions*High quality assets, whichhave sufficient tradabilityto meet fund’s liquidityrequirementsSourceL&T InfrastructureFinance, L&T Fincorp,IDF**L&T IDPL Directly from the Market Directly from the Market Directly from the MarketInstrumenttypeNCDs and structuredobligationsNCDs and structuredobligationsNCDs and structuredobligationsNCDs or PTCs*NCDsRiskMitigationRigorous due diligence byL&T Mutual Fund’sinvestment team ;Expertise and sectorknowledge of L&T infraRigorous due diligence byL&T Mutual Fund’sinvestment team ;Expertise and sectorknowledge of L&T IDPLRigorous due diligence byL&T Mutual Fund’sinvestment teamRigorous due diligence byL&T Mutual Fund’sinvestment teamRigorous due diligence byL&T Mutual Fund’sinvestment teamadequate structures andcovenants to be put inplace ; credit enhancementby higher rated companiesadequate structures andcovenants to be put inplace; credit enhancementby higher rated companiesadequate structures andcovenants to be put inplace ; Tapping into theexpertise and knowledgeof L&T’s sector specialistsadequate structures andcovenants to be put inplaceNAAllocationLimits(Indicative)0 - 40% 0-25% 0-20% 0-40% 0-25%Please note that this is an indicative strategy and is not to be construed as advising on / disclosing the actual construct ofthe portfolio. The actual allocations may vary significantly due to changing market conditions / unavailability of securities.* Securitization deals subject to regulations ** Other infrastructure financing entities within L&T group
  13. 13. Theme 1 – L&T IDPL’s road project L&T IDPL is a 97% subsidiary of L&T Ltd and engaged in developing various infrastructure projects A leading infra player with a wide portfolio of operational & under implementation projects ; rated ICRA AA / Stable Strong execution capabilities, ability to securitize receivables: 12 of the 21 projects in road sector have already beencompleted largely within stipulated time & cost Strong linkages with the L&T Group: Majority of EPC contracts for L&T IDPL’s SPVs given to L&T’s construction division High flexibility in providing financial support to SPVs: Strong financial metrics with strong networth & negligible externaldebtRoad projectowned by L&TIDPLFully operational infrastructureprojects with established revenuestream ; no project execution risk ;Visibility on cash flowsL&T IDPL as a primary contractor forroutine maintenance & majormaintenance of the project ; strongvisibility on routine maintenancewhich is critical for timely cash flowsHigh financial flexibility: L&TIDPL’s commitment to supportthe SPVs in which the Fund investMajority ownership &management control with L&TIDPL ; Clarity on corporategovernanceInvestment in such projects subject to put option on L&T IDPL ensuring timely payment of principal and interestThe aforesaid is an example given to illustrate the type of securities that the scheme may invest into. Please note that the actualportfolio may or may not have investment in such securities
  14. 14. Theme 2: Co-investment with L&T infra financeA large corporate groupSubsidiary companyA group company engagedin power grid projectsHolding companyA leading global player inoptic fibers & powertransmission conductorsL&T Infrastructure hasbeen a lender on BOOMbasis While L&T infra may have exposure to the lower rated project / subsidiary company, L&T mutual may considerexposure in the higher rated parent company Comfort on standalone credit quality by the mutual fund credit team a pre-requisite L&T mutual to leverage on L&T infra team’s expertise and understanding of company and industry Ability to continuously monitor the operating performance and underlying project progress greatly enhanced Co-investment with L&T infra provides an added layer of comfortPotential exposure forL&T Incomeopportunities fundThe aforesaid is an example given to illustrate the type of securities that the scheme may invest into. Please note that the actualportfolio may or may not have investment in this security
  15. 15. Theme 3: Frontline infrastructure company withstrong parentage – ITNL Strong Parentage of IL&FS Ltd (AAA rated by CARE, FITCH, ICRA)  high financial flexibility. Strong execution track record in road projects ; One of the top 3 road projects operators on BOOT basis Balanced mix of annuity / traffic toll projects and also diversified across geographies  reduces concentration riskwhich is otherwise common in infra projects Healthy pipeline of orders  Revenue visibility for next 2 years Many projects to become operational in next 12-18 months  higher cash flow visibility Strong covenants built in the instrument  high visibility on IL&FS’s ownership, financial leverage & company’scommitment to maintain external ratings BSE / NSE listed company with a market cap of ~Rs 3,600 cr Externally rated by 4 rating agencies (Fitch A/Stable, ICRA A/Stable, CARE A, CRISIL A/Negative )  higher scrutinyon credit metricsThe aforesaid is an example given to illustrate the type of securities that the scheme may invest into. Please note that the actualportfolio may or may not have investment in this security
  16. 16. Why L&T Income Opportunities Fund?Active, but not tradingoriented approach• Exit load for 2 years ; Stable flowshelp reduce liquidity riskWhy invest in L&TIncome OpportunitiesFund?High portfolio yield• A high-yielding, accrual orientedstrategy with focus oninfrastructure sectorModerate Duration Risk• Average maturity not to exceed 3yearsWell researched credits• Rigorous internal credit research processto spot mispriced creditsLeveraging L&T group’sexpertise in infrastructure• Project execution, project financing,knowhow and sourcing abilitieswithin L&T ecosystemA unique investmentproposition• A well differentiated attractiveinvestment option for investorswith 2-3 year investmenthorizon
  17. 17. Particulars DescriptionScheme name L&T Income Opportunities FundCategory Open ended Income SchemeBenchmark CRISIL Short Term Bond Fund IndexExit Load2% if redeemed within 1 year ; 1% if redeemed between 1-2years ; Nil if redeemed after 2 yearsFund Manager Shriram RamanathanMinimum investment Rs. 10,000Fund Facts
  18. 18. 18Investment Process – GEM - 3 stage processGeneration ofideasManufacturingandmonitoring ofPortfoliosViews● Top-down● Bottom-upTypes of Analysis● Fundamental● Macro● Credit● Market TechnicalSources of Alpha● Duration● Credit / Issuer● Security / curveDiversified sourcesof ideasIssuer Analysis based on● Management contacts (company visits, conference calls)● Annual reports● Third-party research● Proprietary company database● Sector outlook● Company Financials: Expected leverage and CF ratios● Business & Environment: Market position, strategic focus andimplementation, management track record, quality of disclosure andtransparencyPeriodic rating review based on● Management, business model, balance sheet & liquidity risk, earnings& cash flow risk, peer group analysisFundamental Credit Analysis● Discussion in InvestmentCommittee● Idiosyncratic riskdiversified through limits atsector and issuer level● Allocations to creditratings, sectors, issuersdone in accordance withrisk tolerance and limits● Exposures are regularlyreviewed to ensureportfolio exposures arewithin investmentguidelinesImplementationFixed Income Investment Process - GEMEvaluationof issuers
  19. 19. BiographyShriram Ramanathan• Funds Managed / Co-ManagedL&T Liquid Fund, L&T Ultra Short Term Fund, L&T Low DurationFund, L&T Short Term Income Fund, L&T Income Opportunities Fundand L&T Flexi Bond Fund• Professional Experience2012 – Present Head – Fixed IncomeL&T Investment Management2009 – 2012 Portfolio ManagerFFMPL, Mumbai, India2006-2009 Senior Investment Manager – Global Emerging Market Debt (Asia),ING Investment Management Asia Pacific, Hong Kong2003 – 2005 Fixed Income Fund ManagerING Investment Management, Mumbai2001 – 2003 Fixed Income ResearchZurich Asset Management, Mumbai2000 – 2001 TreasuryICICI Limited• Education and QualificationsB.E., University of MumbaiPGDBM, XLRI, JamshedpurCFA CharterholderShriram RamanathanFund Manager Profile
  20. 20. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.Disclaimer: This presentation is for general information only and does not have regard to specific investment objectives,financial situation and the particular needs of any specific person who may receive this information. Investments in mutualfunds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors beforeinvesting. Recipient of this document should understand that statements made herein regarding future prospects may not berealized. He/ She should also understand that any reference to the securities/ sectors / indices in the document is only forillustration purpose and may or may not form a part of the portfolio of the scheme and is not any indication of the portfolio ofthe scheme. Neither this presentation nor the units of L&T Mutual Fund have been registered in any jurisdiction. Thedistribution of this presentation in certain jurisdictions may be restricted or totally prohibited and accordingly, persons whocome into possession of this document are required to inform themselves about, and to observe, any such restrictions.CL00243Disclaimer

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