With almost its entire portfolio in blue chips, ICICI Prudential Focused Bluechip Equity is a true large-cap fund. Most other large-cap funds shift a portion of their portfolios into mid-cap stocks, unlike this fund.
In the past one year, ICICI Pru Focused Bluechip is down 15 per cent, making it a mid-quartile performer. Given that mid-caps have been at the receiving end of the market wrath more than blue chips since January, it may seem incongruent that the fund has fared worse than peers such as SBI Bluechip or Kotak Select Focus, both of which have around 10-15 per cent of their portfolio still in mid-caps.
Much of this is attributable to the fund’s slightly contrarian stance. Its focus on valuations often sees it stay away from market favourites. It also holds a concentrated portfolio, because of which a single stock’s slide impacts returns more. But over the long term, the fund scores on all counts. Compared to its benchmark, Nifty 50, the fund is an outperformer across time frames by a margin of 3 to 4 percentage points.
ICICI Pru Focused Bluechip Equity’s steady long-term performance, its large-cap focus, lower volatility, and value-based strategy makes it a good fit for investors’ core portfolio and requires a moderate risk appetite.
Strong and steady
On a three-year rolling return basis since inception in May 2008, the fund has beaten the Nifty 50 returns nearly all the time, making it an extremely consistent performer. On risk-adjusted returns too, the fund is better than its category average.
The fund has, in the correcting markets of 2011 and the largely directionless 2013 market, done much better than both the Nifty 50 and the large-cap fund category. In the correcting market of the past year too, the fund has managed to keep pace with the category average. This shows the fund’s ability to contain downsides. In bullish markets, because of fund’s avoidance of mid-caps, its performance does not match up to the category. But this lower deviation in returns means its volatility is lower than its peers. We think lower volatility is preferable when a fund forms the core of one’s portfolio.
While ICICI Pru Focused Bluechip has a large portfolio of 35-45 stocks, the top 10 usually make up half the portfolio; single stock weights are often 7-9 per cent. The fund keeps an eye on valuations and the long-term potential of both sectors and stocks.
Banks make up 28 per cent of the portfolio now against the 25 per cent the year before and higher than the Nifty 50’s 23 per cent bank exposure. Most stocks it holds here – ICICI Bank, Axis Bank, State Bank of India, and Bank of Baroda, which together form around 12 per cent of the portfolio – have been severely hit and are trading much cheaper than historic valuations. This partly was responsible for the fund’s relative under-performance in recent times.
The heavier weight to the banking sector compared to the index has been in place for over two years now. In mid-2014, the exposure to the sector was a good 30 per cent. Over the past year, the fund shifted out of NBFC stocks, where valuations are rocketing, into banking instead. The bad loan problems being tackled with greater intensity and a pick-up in credit growth as the economy cements its revival, can turn the fortunes of this sector around. The fund does have star private sector banks like HDFC Bank and Kotak Mahindra Bank as well.
Banks apart, the fund has a decided tilt towards sectors depending on an overall economic turnaround, such as power, oil and petroleum, industrials, and cement. It dropped exposure to automobiles, unlike several peers. The market has, so far, been kinder to the consumption theme than to cyclical themes, as growth prospects are clearer there. But it also means valuations are more expensive. While cyclical themes may not see any dramatic improvement in the near term, as the economic turnaround becomes more broad-based over time, it should then revive. Stock picking within these sectors, however, holds the key.
To this extent, the fund does appear to have leaders and those that will fare well, such as Larsen & Toubro, ACC, Reliance Industries, ONGC, Power Grid and so on, and not shaky companies. The fund has also balanced its portfolio by upping exposure to the other standard defensive pharmaceuticals and software. The fund is managed by Manish Gunwani. It has an AUM of Rs. 9,560 crore.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis of investment decisions. To know how to read our weekly fund reviews, please click here.
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