Higher returns, lower volatility

Last Updated: Mon, Jun 17, 2013 22:50 hrs

ICICI Prudential Focused Bluechip Equity Fund was launched in May 2008. The fund has been classified as a large cap fund under the CRISIL Mutual Fund Ranking wherein it has been CRISIL Fund Rank 1 (very good performance) for 10 out of the 12 quarters since June 2010. The fund was ranked CRISIL Fund Rank 2 (good performance) for the quarter ended June 2010 and March 2013. Overall, the fund has been ranked within the top 30 percentile of the large cap category across these 12 quarters. The consistency of the fund's performance can be attributed to higher returns while maintaining lower volatility.

The fund's assets under management (AUM) stood at Rs 4,423 crore as of April 2013 and have grown four times since January 2010, compared to the category which has grown by 24 per cent over the same period. The fund is managed by Manish Gunwani, senior fund manager at ICICI Prudential AMC, since January 2012.

Objective: Long-term appreciation
The objective of the fund is to generate long-term capital appreciation by investing in about 20 companies of the large cap domain. If the total AUM of the fund increases over Rs 1,000 crore, the fund can increase the number of companies to more than 30. Until January 2010, when the fund's AUM was less than Rs 1,000 crore, the average number of companies held was 20. Since January 2012, the average number of companies held in the portfolio is 29.

The fund has an average equity exposure 95 per cent over the past three years till April 2013, out of which 93 per cent is in CRISIL defined large cap stocks (top 100 stocks based on average market capitalisation on the National Stock Exchange).

The fund has outperformed both its benchmark (CNX Nifty Index) and the category average across time frames (one, two, three, five years and since inception). Over the past five years, the fund has given annualised return of 13.2 per cent compared to 4.91 per cent and 7.11 per cent by its benchmark and the category, respectively.

An investment of Rs 1,000 since inception (May 23, 2008) of the fund would have appreciated to Rs 1,833 at an annualised growth rate of 12.77 per cent till June 7. The same amount invested in the benchmark would have returned Rs 1,189 while the category would have yielded Rs 1,343 during the same period, by giving 3.49 per cent and 6.02 per cent annualised returns, respectively.

A monthly investment of Rs 1,000 over a five-year period under the systematic investment plan (SIP), till June 7, would have grown to Rs 84,155 (principal of Rs 60,000) yielding an annualised growth rate of close to 14 per cent. A similar investment in the benchmark would have grown to Rs 73,828 at an annualised growth rate of 8.44 per cent.

The fund's performance is also associated with lower volatility (measured by standard deviation) of 18.13 per cent compared to the benchmark (20.56 per cent) but marginally higher than the category (18.11 per cent) over the same period. Accordingly, the fund has performed well on a risk-adjusted basis (risk is measured by volatility) which is reflected in a higher Sharpe ratio of 0.31 compared to 0.04 for the category over the past three years till June 7.

Portfolio strategy
The fund aims to create reasonable diversification across sectors while concentrating on 25-30 stocks to limit dilution by over diversification. It follows a 'buy and hold' strategy at the stock level.

Over the three-year period ended April, the fund has maintained 90 per cent of its equity exposure to CNX Nifty Index constituents. About 60 per cent of its equity exposure (15 stocks) has been a part of its portfolio for more than 24 months.

The fund has higher portfolio concentration at both stock and sector level compared to the category. The fund has held an average 27 stocks when compared to 40 of the category over the past three-year period. At the sector level, the fund's exposure to the top 5 industries is 61 per cent vis-a-vis the category's 57 per cent. The exposure of the fund to the top 10 holdings over the past three years is 58 per cent of its equity exposure compared to the category's 50 per cent.

Among its top 10 holdings, exposure to stocks like ITC, Bajaj Auto and HDFC Bank have helped the fund generate higher returns over the past three years.

The fund was overweight by about six per cent to banks as compared to the benchmark and the category and on auto by two per cent over the benchmark and four per cent over the category. These categories represented by the CNX Bank Index and the CNX Auto Index gave 8.36 per cent and 12.46 per cent annualised returns compared to 3.96 per cent of the CNX Nifty over a three-year period. Also, underexposure to underperforming sectors such as oil, power and petroleum products helped the fund in its performance.

CRISIL Research

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