Portfolio Manager – Hammad Ali Abbas has managed this fund since July 2010. His association with ABL Asset Management Company Limited (AAMCL), started in 2008 when he took the reins of ABL Income Fund (ABL-IF). Currently, he is managing three funds namely, ABL Cash Fund (ABL-CF), ABL Income Fund (ABL-IF) and ABL Islamic Cash Fund (ABL – ICF).
Strategy – Fund manager adheres to an aggressive investment style in his money market fund compared to peers in order to generate high returns, even when investment avenues are confined. It has been witnessed that portfolio weights of market treasury bills (T-Bills) and Bank Deposits (TDR) of the fund oscillate between the two. Moreover, the fund manager keeps on the lookout for other investment vehicles (approved by the regulator — SECP), which are a little unconventional but still fall within the money market investment parameters. Perfect example for this would be the recent exposure taken (Jun-11) in the Islamic commercial paper of Kot Addu Power Company Limited (KAPCO).
Opinion – Since inception ABL cash fund has managed to post strong returns, enabling it to secure its place in the top three within its category during FY11. Although due to regular dividend pay-outs volatility of returns has been slightly above average, ABL-CF is benefiting from economies of scale derived from its relative size. Total Expense Ratio for 9MFY11 stands at 0.67% (peer avg – 0.96%) the lowest amongst its category.
However, with high investor concentration, fund is invariably prone to concentration risk, and has experienced massive swings in asset size. Risk can be gauged form significant decline of 20.6% within the last two months, Jun-11 (PKR 10.6bln) [May-11 (PKR 13.4bln)]. A rapid swing of this magnitude in principal has the potential to disturb the investment allocation resulting in a reduced return for other beneficiaries. (Note – approximately – 60% of money market funds in the asset management industry stand at Rs3.0 or below).
The fund has been successful in mixing-up perfect recipe for returns by constantly switching from Treasury bill to term deposit receipt in line with volatile inflationary pressure. While on the other side the fund manager kept on stashing 10% of its total assets in banks as cash balance which acted as the secret sauce for spicing up returns. Currently, more than half of the fund is invested in T-Bills, with further holdings diversified in term deposits receipts (19%), and cash balances (16%) during July 2011. Portfolios duration stands at 69days which is in-line with market expectations.
Overall, since inception the fund has posted a return of 11.94% (i.e. net of total expenses). Overall, with persistent price pressure within the economy interest rates are expected to remain stable for some time, and would in-turn assure consistent returns for money market funds like ABL-CF. However, due to the same fundamentals at play would continue to haunt real returns.
