Unravelling Value
If you are looking for mid and small-cap exposure but with a focus on value, then ICICI Pru Discovery is a good choice. ICICI Pru Discovery may not be a new-fangled investment idea for you, as it is likely that you saw it in the list of chart busters. Its five-year compounded annual return of close to 12 per cent, places it in the top of the diversified equity fund category.
Yet, it is important that you know why this fund performed the way it did and whether it can continue this feat. This article will therefore focus on the above, rather than discuss only on its returns; the latter now known to all.
How it performed
If you take a look at ICICI Pru Discovery’s track record, the initial years were nothing to write home about. For three years between December 2004 and 2007, the fund delivered marginally lower than the category average return. Having a value bias did not help it too well in the 2006-07 growth market. In fact, in 2007, the fund delivered only 40 per cent as against equity funds’ average of 60 per cent.
A value theme is never an overnight winner. Stocks with cheap valuations may remain so, for certain reasons, despite underlying sound fundamentals. It may be so as a result of issues in certain sectors or sometimes the potential of certain companies remaining undiscovered.
But 2008 gave ICICI Pru Discovery a good break. Its value bias helped it contain declines to less than 50 per cent between January 2008 highs to March 2009 lows. That’s better than most other equity funds. The fund stayed with over 90-percent invested in equities in late 2008 even as mid-cap plays such as IDFC Premier Equity went lower than 80 per cent in equities, when markets fell.
Staying invested helped ICICI Pru Discovery in two ways. One, it was loading up on stocks that turned ‘valuable’ during the correction. Two, it managed an early bird rally gaining 134 per cent in 2009 alone (IDFC Premier Equity managed 102 per cent) as against category average of 96 per cent.
The fund has since been pruning stocks and sectors that lost value, booking profits when valuations rose. This does sometimes result in losing out on the returns race as was the case in 2010 (when some peers outperformed the fund). But this was necessary to keep its value focus.
What it holds
ICICI Pru Discovery’s value bias holds considerable investment merit in the current market for two reasons. One, the choppy markets, with pockets of under valued stocks, provide opportunities for good stock picks, particularly for funds like ICICI Discovery. Two, quality mid and small-cap stocks of the pre-2008 period are still trading at low valuations as they are hurt by the economic slowdown and high interest rates. A revival in the economy would mean a massive re-rating in these stocks. Not too many equity funds you see will hold stocks such as Rain Commodities, Texmaco Rail Engineering or Voltamp Transformers.
According to its fund fact sheet, the fund has a portfolio of stocks with an average price to earnings ratio of 11.9 times. The CNX Midcap P/E ratio stood at 17.
Portfolio & Performance
ICICI Pru Discovery pruned exposure to software and pharma in the course of the last one year, when valuations rose. It increased exposure to cyclical sectors such as banks, auto ancillaries and capital goods. It is one of the few funds with less than 2 per cent exposure to FMCG. The fund has two-thirds of its portfolio laden with mid and small-cap stocks of less than Rs 10,000 crore market capitalisation. For IDFC Premier Equity, the same stood at about half of its assets. The latter, has higher exposure to large-cap stocks than ICICI Pru Discovery.
An SIP in ICICI Pru Discovery would have yielded a far higher 20.5 per cent annualized return in the last five years as against 12 per cent annually point-to point. An SIP in its benchmark CNX Midcap would have delivered just 10 per cent.
The fund is managed by Mrinal Singh from February 2011. It was earlier managed by Sankaran Naren, now CIO Equities.
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I have invested Rs 4 lacs in different Mutual Fund (comprising equity and balanced scheme) on SIP basis for the last 2years. Now my fund value is Rs 4.8 lacs. I am planning to redeem all and invest the amount in FD and restart SIP for another 24 months . Is it correct step on not?
Much would depend on what and when your goal is. If you are nearing your goal (say in the next 1-1.5 years), you may want to move your money to safer avenues such as FD. If your goal is long term then there may not be any need to redeem. Allowing your money to grow will help compounding. If you start all over again, then you will lose the compounding effect on the wealth built so far. In general, two years is too short a time to build wealth. Equity funds are meant to be held for at least 3-5 years to build wealth.
continue only profitable star rated funds
Thanks for info.Future plans
by icici pru stood its always
in front.
Due to transperancy
I join icici pru as an Agent
Aug2012. Today every body use
high-tech commnication and not
easy to misguide
Hi Vidya
Currently i am holding below funds : –
ICICI Prudential Focused Bluechip Equity Reg-G – 5000 SIP
Reliance Gold Savings Fund – 2000 SIP
ICICI pru discovery direct -G – 3000 SIP
I want to add 3 more Funds to my portfolio. Time horizon is 5 years from now. I am confused in between below funds:-
Large Cap
————-
1. UTI Opportunities fund (large Cap)
2. HDFC Equity Fund
3. HDFC Top 200
4. DSP BlackRock Top 100 Equity Fund
5. Franklin India Bluechip
Mid Cap
———
1. IDFC Premier Equity Direct- G ( Expense Ratio is 0.02% compare to 2.25% in regular)
2. SBI Emerging Business Fund Direct – G
3. HDFC Mid-Cap Opportunities Direct-G
There are many funds like IDFC or Franklin where expense ratio is low compared to standard plan. Please suggest which funds should i add in my portfolio.
Hi Vibhor,
First, I ‘d like to bring to your notice that the 0.02% expense ratio for IDFCC PRemier equity, captured in valueresearch is wrong. It is 1.56%. You may go to http://www.idfcmf.com/download-centre.aspx click on ‘notices’ and see the excel sheet called 30.09.2013. You will find all expense ratios there. No fund can have such a low expense ratio and normally the diff. between regular and direct plans are about 0.5-0.75% at most.
Fund review and advice services are available for all activated FundsIndia investors, free of cost, for the funds they hold in our platform. request you to use the ‘Ask advisor’ feature if you have an account activated with us or complete the one-time paper work to activate it. We will be glad to help you choose a well asset-allocated portfolio suiting your goals and risk profile and also review them when you require us to.
Thanks
Vidya
Hi Vidya..Thanks for the reply. I checked the expense ratio on moneycontrol.com.
I have filled the form but still waiting for the reply from Fundsindia.com for activation.
Hi Vibhor, Yes, both moneycontrol and valueresearch data can be wrong as far as transaction details are concerned. it is always better to check with the fund website for data such as min. investment amt, load, expense etc.
If you have completed the online formalty with FundsIndia, a printout has to be either sent to us with the various proofs or you need to request for a pick up. If you need any help in this regard, I can ask our support team to talk to you.Thanks.
Hi Vidya..Thanks for the Guidance. It will be great if you can ask your support team to pick the required documents from me. Please let me know the mail id to mail my communication/pick up address.
Vibhor, Our staff will/or would already have, contacted you. Your contact details are with us. Thanks.
I have invested Rs 4 lacs in different Mutual Fund (comprising equity and balanced scheme) on SIP basis for the last 2years. Now my fund value is Rs 4.8 lacs. I am planning to redeem all and invest the amount in FD and restart SIP for another 24 months . Is it correct step on not?
Much would depend on what and when your goal is. If you are nearing your goal (say in the next 1-1.5 years), you may want to move your money to safer avenues such as FD. If your goal is long term then there may not be any need to redeem. Allowing your money to grow will help compounding. If you start all over again, then you will lose the compounding effect on the wealth built so far. In general, two years is too short a time to build wealth. Equity funds are meant to be held for at least 3-5 years to build wealth.
continue only profitable star rated funds
Thanks for info.Future plans
by icici pru stood its always
in front.
Due to transperancy
I join icici pru as an Agent
Aug2012. Today every body use
high-tech commnication and not
easy to misguide
Hi Vidya
Currently i am holding below funds : –
ICICI Prudential Focused Bluechip Equity Reg-G – 5000 SIP
Reliance Gold Savings Fund – 2000 SIP
ICICI pru discovery direct -G – 3000 SIP
I want to add 3 more Funds to my portfolio. Time horizon is 5 years from now. I am confused in between below funds:-
Large Cap
————-
1. UTI Opportunities fund (large Cap)
2. HDFC Equity Fund
3. HDFC Top 200
4. DSP BlackRock Top 100 Equity Fund
5. Franklin India Bluechip
Mid Cap
———
1. IDFC Premier Equity Direct- G ( Expense Ratio is 0.02% compare to 2.25% in regular)
2. SBI Emerging Business Fund Direct – G
3. HDFC Mid-Cap Opportunities Direct-G
There are many funds like IDFC or Franklin where expense ratio is low compared to standard plan. Please suggest which funds should i add in my portfolio.
Hi Vibhor,
First, I ‘d like to bring to your notice that the 0.02% expense ratio for IDFCC PRemier equity, captured in valueresearch is wrong. It is 1.56%. You may go to http://www.idfcmf.com/download-centre.aspx click on ‘notices’ and see the excel sheet called 30.09.2013. You will find all expense ratios there. No fund can have such a low expense ratio and normally the diff. between regular and direct plans are about 0.5-0.75% at most.
Fund review and advice services are available for all activated FundsIndia investors, free of cost, for the funds they hold in our platform. request you to use the ‘Ask advisor’ feature if you have an account activated with us or complete the one-time paper work to activate it. We will be glad to help you choose a well asset-allocated portfolio suiting your goals and risk profile and also review them when you require us to.
Thanks
Vidya
Hi Vidya..Thanks for the reply. I checked the expense ratio on moneycontrol.com.
I have filled the form but still waiting for the reply from Fundsindia.com for activation.
Hi Vibhor, Yes, both moneycontrol and valueresearch data can be wrong as far as transaction details are concerned. it is always better to check with the fund website for data such as min. investment amt, load, expense etc.
If you have completed the online formalty with FundsIndia, a printout has to be either sent to us with the various proofs or you need to request for a pick up. If you need any help in this regard, I can ask our support team to talk to you.Thanks.
Hi Vidya..Thanks for the Guidance. It will be great if you can ask your support team to pick the required documents from me. Please let me know the mail id to mail my communication/pick up address.
Vibhor, Our staff will/or would already have, contacted you. Your contact details are with us. Thanks.