Focused Funds endeavour to identify high conviction stocks in select sectors that are expected to do well in the medium to long term and take concentrated exposure in such stocks/sectors. These funds have the flexibility to choose high-potential stocks from across market caps and sectors, giving them the opportunity to benefit from dynamic market conditions.
However, on the off chance that the fund manager’s bets do not pay off as expected, investors may incur heavy losses due to high concentration of the portfolio. Therefore, it is important to select Focused Fund for your portfolio carefully.
ICICI Prudential Focused Equity Fund is a lesser-known Focused Fund that has picked up its performance in the last couple of years without exposing the portfolio to high risk. The fund looks to identify high conviction ideas across market caps and sectors but with an eye on valuation.
Graph 1: Growth of Rs 10,000 if invested in ICICI Pru Focused Equity Fund 5 years ago
Past performance is not an indicator of future returns
Data as on August 24, 2022
(Source: ACE MF)
ICICI Pru Focused Equity Fund is a Focused Fund that aims to grow investors’ wealth through a concentrated portfolio of a maximum of 30 stocks spread across market caps. Launched as a Large Cap Fund in May 2009, the fund was earlier known as ICICI Pru Select Large Cap Fund and held a portfolio typically of large-cap stocks. Post its re-categorisation to the Focused Fund category in 2018, ICICI Pru Focused Equity Fund gained the flexibility to invest across large-cap, mid-cap, and small-cap stocks, although it continues to hold a large-cap oriented portfolio. Backed by a fund house that is known for a stable investment process and an experienced fund manager who holds a preference for value and contrarian investment style, ICICI Pru Focused Equity Fund usually stays away from momentum-driven stocks/sectors. This strategy enables the fund to limit the downside risk during tough market conditions and also participate in the recovery and bull phases. Notably, ICICI Pru Focused Equity Fund witnessed weak growth in the last few years due to its low exposure to certain stocks that drove the rally in the benchmark index. However, ICICI Pru Focused Equity Fund has shown significant improvement in performance from the year 2020 onwards to find a place among the top performers in the Focused Fund category. In the last five years, ICICI Pru Focused Equity Fund has grown at a compounded annualised rate of 14.3% which is slightly higher than the benchmark returns.
Table: ICICI Pru Focused Equity Fund’s performance vis-á-vis category peers
|Quant Focused Fund
|Nippon India Focused Equity Fund
|IIFL Focused Equity Fund
|Mirae Asset Focused Fund
|HDFC Focused 30 Fund
|Franklin India Focused Equity Fund
|Sundaram Focused Fund
|ICICI Pru Focused Equity Fund
|Union Focused Fund
|SBI Focused Equity Fund
|S&P BSE 500 – TRI
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on August 24, 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.
ICICI Pru Focused Equity Fund has shown a turnaround performance and has stood among the top performers in the Focused fund category. While the fund has occasionally witnessed bouts of underperformance, its long-term performance is reasonable. Notably, ICICI Pru Focused Equity Fund has recorded superior growth in the last couple of years and has managed to outpace the benchmark by a noticeable margin. In the last 1-year and 3-year period, ICICI Pru Focused Equity Fund has outpaced the category average by around a percentage point. Moreover, the fund currently stands among the top performers in the category across time frames.
The volatility (standard deviation) of ICICI Pru Focused Equity Fund is the lowest in the Focused fund category and much lower than the benchmark. In addition, its Sharpe (0.24), a measure of risk-adjusted return is currently among the best in the category though lower than the benchmark.
Investment strategy of ICICI Pru Focused Equity Fund
Categorised under Focused Funds, ICICI Pru Focused Equity Fund is mandated to invest in a concentrated portfolio of up to 30 equity and equity-related securities. The fund has the flexibility to follow multi-cap approach to invest across market caps but holds a large-cap bias and aims to identify stocks that have the potential to outperform over medium to long term. It follows a bottom-up approach to select fundamentally sound stocks based on parameters such as Discounted cash flow, Return on investment, Return on invested capital relative to weighted average cost of capital, Price/Book Value, Earnings yield, etc.
ICICI Pru Focused Equity Fund focuses on investing in companies that have robust business financials, quality management, above-average profitability, and sustained competitive advantages. It also discerns value to assess the growth potential of the stock. The fund is sector agnostic and maintains an overweight stance on select high conviction themes/sectors that are expected to outperform in the ongoing economic cycle.
Graph 2: Top portfolio holdings in ICICI Pru Focused Equity Fund
Holding in (%) as of July 31, 2022
(Source: ACE MF)
Being a Focused Fund, ICICI Pru Focused Equity Fund holds a maximum of 30 stocks in its portfolio at any point of time. As of July 31, 2022, ICICI Pru Focused Equity Fund held 27 stocks in its portfolio diversified across sectors. The fund held its top exposure in large-cap names like ICICI Bank, HDFC Bank, Reliance Industries, Mahindra & Mahindra, and Infosys. The top 10 holdings in the fund’s portfolio together account for about 54.7% of the total assets. The fund usually holds stocks with a long-term view and accordingly, it had a low turnover ratio of 35-65% in the last one year.
In the last one year, ICICI Pru Focused Equity Fund benefitted from its holdings in Mahindra & Mahindra, TVS Motor Company, Brigade Enterprises, ICICI Bank, Bharti Airtel, and Sun Pharma, among others.
ICICI Pru Focused Equity Fund’s portfolio is heavily skewed towards Financials, with Banks carrying around 25.7% weightage in the portfolio, with another 13% in Finance stocks. It also holds significant exposure to Infotech followed by Auto, Petroleum, Pharma, Construction, Engineering, and Telecom, among others. About 89% of its portfolio is spread across top 10 sectors. Although ICICI Pru Focused Equity Fund’s portfolio is biased towards cyclicals, it has significant exposure to defensive and sensitive sectors as well.
ICICI Pru Focused Equity Fund has shown significant improvement in its performance in the last couple of years and now stands among the top performers in the focused fund category. Meanwhile, its performance has been reasonable compared to the benchmark. In the past too ICICI Pru Focused Equity Fund has outpaced the benchmark and many of its peers by a wide margin during certain periods, resulting in higher returns for investors in the scheme. ICICI Pru Focused Equity Fund has achieved this without exposing the portfolio to high volatility and has rewarded investors with superior risk-adjusted returns.
With a portfolio that has a predominant large-cap bias ICICI Pru Focused Equity Fund has the potential to generate stable returns without exposing investors to high risk. However, its performance may be in sharp contrast to its Focused Fund peers that hold significant exposure to stocks in the mid-cap and small-cap segments. With a fairly diversified portfolio, robust investment processes, and a preference for safety, ICICI Pru Focused Equity Fund seems well-placed to ride the market across highs and lows and generate superior returns over the long run.
ICICI Pru Focused Equity Fund is suitable for investors looking to invest in a well-managed fund focusing on high-conviction ideas with a long-term investment horizon.
This article first appeared on PersonalFN here