FundsIndia Recommends: ICICI Prudential Focused Bluechip Equity

If you are new to equity funds and are investing for the long term, then a fund like ICICI Pru Focused Bluechip Equity (ICICI Pru Focused) can be part of your asset allocated portfolio. A pure large-cap focus, a value/contrarian tilt and selective use of derivatives mark the fund’s strategy. All these work towards reducing volatility and growing wealth. The fund delivered a compounded annual return of 17.3% in the last 5 years as opposed to the Nifty 50 TRI returns of 14%. The fund, which will complete 10 years in May 2018, sports an annualised return of 15.3% since inception. A monthly SIP over this period would have delivered an IRR of 16.3%.

The fund and suitability

ICICI Pru Focused Bluechip Equity is suitable for all investors and specifically for those who wish to contain volatility within the constraints of the inevitable gyrations in equity markets. This fund, along with Franklin India Bluechip, consciously seeks to reduce volatility in performance. ICICI Pru Focused primarily achieves this through contrarian calls and uses derivatives at a stock/index level. The Franklin fund does not do the latter.

Performance

ICICI Pru Focused has been a consistent performer across market cycles. It beat a tougher benchmark we took, the BSE 100 TRI (its own index is the Nifty 50), 87.2% of the times when returns were rolled daily for 1-year periods over the past 3 years. This is among the best in the large-cap category although the topper remains Mirae Asset India Opportunities. But it is to be noted that the Mirae fund holds lower proportion in large-cap stocks when compared with ICICI Pru Focused.

We also looked at the risk-adjusted return using the information ratio. The information ratio measures the fund’s returns in excess of the benchmark’s return per unit of risk assumed. On this metric, ICICI Pru Focused scores better when compared with funds such as Aditya Birla Sun Life Top 100, Kotak 50, Axis Focused 25 or ICICI Pru Top 100, which too have the same benchmark (Nifty 50). In other words, among funds benchmarked against the Nifty 50, the ICICI Pru fund generated superior risk-adjusted returns.

ICICI Pru Focused, as expected, also scored well in down markets, when this was measured using capture ratio. Capture ratio seeks to report how well a fund contained declines or delivered over benchmark in down and up markets respectively. However, the upside returns of the ICICI Pru fund were not as high as many other peers. That the fund still scores overall means that it has done better by containing downsides than generating very high returns in up markets.

Portfolio

ICICI Pru Focused remains underweight banking and financial services when compared with the index. This helped the fund combat volatility better than many peers in the recent market correction. Over the course of the last one year it cut down exposure to ferrous metals and FMCG as opposed to higher exposure seen in many peers. It, instead, increased holding in power, telecom and auto. It was among the few to take early exposure to tech stocks last year when they were out of favour. The fund gained from TCS and exited it even as it continued to hold other stocks such as Infosys and Tech Mahindra; albeit with lower sector exposure.

Given that its strategy is to take focused exposure to stocks, ICICI Pru Focused hedges this selectively with stock derivatives (stock futures) to help deal with volatility in some of its exposure. The use of such derivatives could be to either curtail sharp falls in individual stocks or to gain from any directional bets.

ICICI Pru Focused is now managed by Rajat Chandak along with Sankaran Naren, since the exit of Manish Gunwani in July 2017. The fund has an AUM of Rs 16,700 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 for investment decisions. To know how to read our weekly fund reviews, please click here.