Value funds staged a comeback after a deep lull between 2018 and early 2020. Many schemes in the category have clocked superior returns in the last couple of years.
Value investing is all about finding the ‘hidden gems’ of the equity market. When the market realises the true potential of value stocks, their prices soar, and investors are rewarded with attractive gains. However, to get the optimal benefit of the future potential of value stocks it is vital to select a Value Fund that sticks to the guiding principles of ‘Value Investing’ while constructing the portfolio.
ICICI Pru Value Discovery Fund is one such true-to-style value fund that has delivered superior performance across various market phases and cycles.
Graph 1: Growth of Rs 10,000 if invested in ICICI Prudential Value Discovery Fund 5 years ago
Past performance is not an indicator of future returns
Data as on April 19, 2022
(Source: ACE MF)
ICICI Prudential Value Discovery Fund is a true-to-style value-oriented scheme that looks for undervalued stocks having the potential to deliver superior returns. With a corpus of 23,149 crore, ICICI Prudential Value Discovery Fund is the largest scheme in the Value Fund category. The fund’s cautious approach and strong inclination towards value helped it stand strong and limit losses during the 2018 mid-cap correction as well as the 2020 market crash. Moreover, the fund has outpaced the benchmark and many of its peers in the recent bull phase. The fund avoids investing in momentum-driven bets which helps it to outpace its peers in the long run. Moreover, its large-cap bias adds stability to the portfolio. In the last 5 years, ICICI Prudential Value Discovery Fund has grown at a CAGR of 15.2% compared to a growth of 14.2% in its benchmark. An investment of Rs 10,000 five years back would have now appreciated to Rs 20,290.
Table: ICICI Prudential Value Discovery Fund’s performance vis-á-vis category peers
|ICICI Pru Value Discovery Fund
|IDFC Sterling Value Fund
|Nippon India Value Fund
|L&T India Value Fund
|Templeton India Value Fund
|UTI Value Opp Fund
|Union Value Discovery Fund
|JM Value Fund
|IDBI Long Term Value Fund
|Tata Equity P/E Fund
|NIFTY 500 – TRI
Returns are point to point and in %, calculated using Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on April 19, 2022
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
With the recovery seen in the Value Funds category in the last couple of years, ICICI Prudential Value Discovery Fund has benefitted immensely. The fund currently stands among the top quartile performers in the category across time frames. In the last 1-year, 2-year, and 3-year time period ICICI Prudential Value Discovery Fund has outpaced the benchmark by around 5-12 percentage points. Even over the longer time period of 5-years and 7-years, the fund has managed to generate a decent lead over the benchmark and category average.
ICICI Prudential Value Discovery Fund also stands out in terms of risk-adjusted returns. Its volatility, denoted by Standard Deviation, is lower than the benchmark and its peers. Moreover, its Sharpe ratio is among the best in the category and much ahead of the benchmark.
Investment strategy of ICICI Prudential Value Discovery Fund
Categorised as a Value Fund, ICICI Prudential Value Discovery Fund has a mandate to invest a minimum of 65% of its assets in equity and equity-related instruments following a value investment strategy. Accordingly, ICICI Prudential Value Discovery Fund endeavours to invest in high potential stocks available at a significant discount to their fair valuation. The scheme, through its process of discovery, seeks to identify stocks whose prices are low relative to their historic performance, earnings, book value, cash flow potential, and dividend yield. The fund adopts the ‘bottom-up’ strategy to identify stocks that have strong fundamentals but are trading at prices lower than its intrinsic value.
The fund has the flexibility to invest across sectors and market capitalisation. However, the fund maintains a large-cap bias wherein it allocates around 65-75% of its assets. The balance is allocated in stocks in the mid-cap and small-cap segment. In the last few months the fund has also added a few overseas equities to the portfolio to benefit from geographical diversification. The fund strictly sticks to its investment mandate and prefers to stay fully invested in equities.
Graph 2: Top portfolio holdings in ICICI Prudential Value Discovery Fund
Holding in (%) as of March 31, 2022
(Source: ACE MF)
The number of stocks in ICICI Prudential Value Discovery Fund’s portfolio usually ranges between 60 and 70. As of March 31, 2022, the fund held 56 domestic equities along with a few overseas equities. The top 10 holdings accounted for around 51.6% of its total assets. ONGC is currently the fund’s top equity holding, closely followed by NTPC, Sun Pharma, Bharti Airtel, and ICICI Bank. The fund has higher turnover rate of 90-100% in recent months.
ICICI Prudential Value Discovery Fund currently holds an allocation of 7.7% in overseas equities such as Vodafone Group Plc., Verizon Communications, Unilever Plc., Mitsubishi UFG Financial Group, and Viatris Inc.
In the last one year, the fund has benefited the most from its holdings in Sun Pharma, Infosys, Bharti Airtel, Tata Steel, Hindalco, and NTPC, among others. It booked profit in Avanti Feeds, Triveni Turbine, Oil India, HDFC Life Insurance, Sandhar Technologies, Maruti Suzuki India, Bajaj Auto, EIH, Chalet Hotels, etc. The fund has kept itself away from growth stocks that have been major index drivers in the last few years.
ICICI Prudential Value Discovery Fund has higher exposure to stocks in the Banking & Finance sector, wherein it has allocated 18.8% of its assets. It also has significant allocation to defensive sectors such as Pharma, Power, and Telecom. Oil & Gas, Auto, Consumption, Infotech, Metals, etc. are the other sectors that form part of the fund’s portfolio.
ICICI Prudential Value Discovery Fund’s track record of identifying discounted sectors and picking quality undervalued stocks has proved to be rewarding in the long run. The fund follows a ‘buy-and-hold’ approach and remains unmoved by the market momentum. The cautious investment strategy and exposure to undervalued and defensive sectors helps the fund to limit the downside well during extreme market corrections.
ICICI Prudential Value Discovery Fund has a veteran fund manager, Mr Sankaren Naren, at helm who is known for his high conviction value bets. As it takes time for undervalued stocks to be discovered by the market, certain bets of the fund may not pay off immediately. Hence, the scheme may witness bouts of short-term underperformance.
Value as an investment strategy deserves patience to discover the full potential of undervalued stocks. Hence, ICICI Prudential Value Discovery Fund is suitable only for investors with high risk profile and an investment horizon of at least 5-7 years.
Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This article first appeared on PersonalFN here