PICIC Asset Management Company – Cash Fund

Portfolio Manager
Tauqeer Shamshad holds the position of Head of Fixed Income and Treasury at PICIC Asset Management Company. He has over 18 years of experience in treasury and asset management companies, and is currently managing PICIC Cash Fund (PICIC-CF) and PICIC Income Fund (PICIC-IF) at PICIC.

Strategy
According to the commentary in the monthly fund manager report, the fund claims to invest in shorter duration instruments to maximise the returns of investors. In the first few months the duration was low, however, as the discount rate remained stable for the first six months of 2011, the fund manager changed the stance and went for the longer duration instruments.

Opinion
PICIC-CF has achieved a below average return since inception in December 2010. However, the fund tends to attract investors by maintaining extremely low volatility in returns, which ensures steady returns. And secondly by paying regular dividends monthly which are averaging around 1.02 per cent.
PICIC-CF has managed to deliver stable returns over the last seven months. However, the fund has yet to capitalise on the large fund size that is has accumulated so far.
Management fee of the fund is low as compared to category average, at 1.00 per cent per annum, which should stimulate investments in PICIC-CF. Fund’s total expense ratio has been 0.23 per cent from Jan-11 to Mar-11, which roughly matches the category average for a quarter. This eventually means that PICIC Asset Management Company is no different than the rest of the players in the asset management industry that have an expense ratio of 1.5 per cent per annum to run a money market fund.
The fund grew by Rs828m in seven months to Rs1.2b, which amounts to a growth rate of a whopping 229 per cent since inception to June 2011. The volatility of the fund size was low till Apr-11 when a huge rise of 224 per cent was witnessed. Due to confidentiality reasons funds do not disclose the investors but most likely a huge amount of Rs753m coming in Apr-11 conveys that it must be a corporate placing its funds in the PICIC-CF. Normally, fund size grows gradually, however in the case of PICIC-CF, the investor concentration risk rises to above average levels.
Looking at the fund’s historical composition pattern, on average it tends to keep more than 70 per cent in T-Bills, around 16 per cent in term deposits with commercial banks and close to 12 per cent is held in cash while the portfolio’s duration hovers around 52 days.An adequate historical average of duration expresses that the fund’s inclination is more towards investing in longer duration T-Bills and also that the fund manager foresees that interest rates will remain the same or decrease.
Currently the fund is invested 66 per cent in T-Bills while rest is placed with Banks and DFIs with duration of portfolio around 82days.
Concerns regarding PICIC-CF are that the fund has shown an abnormal growth in its nascent stage which might mean more unstable money is likely to enter the fund in the future. Secondly, the fund has invested eight per cent of its assets in an Islamic commercial paper which is a major point of concern; one reason being that it was misrepresented in Jun-11 fund manager report; secondly, details regarding this Islamic commercial paper are not disclosed as it is an orthodox investment. PICIC-CF would only be recommended if the fund manager eats his own cooking, that is, the fund manager himself invests his savings in this fund, which is highly doubtful.