Hybrid mutual funds allow you to invest across equity and debt through a single fund. Among the various types of hybrid mutual funds available for investment, Aggressive hybrid funds could prove to be a worthy long-term bet for investors looking to benefit from the high growth potential of equities as well as the stability of debt investment.

Aggressive Hybrid Funds invest predominantly in equity and equity-related instruments along with meaningful exposure in debt securities (to reduce volatility). This approach provides you with the benefit of the upside potential of equity investment at a lower risk as compared to pure equity funds.

ICICI Pru Equity & Debt Fund is a popular Aggressive Hybrid Fund that has shown significant improvement in the ongoing bull phase and has rewarded long-term investors with superior risk-adjusted returns.

Graph 1: Growth of Rs 10,000 if invested in ICICI Pru Equity & Debt Fund at inception

Past performance is not an indicator of future returns
Data as on November 29, 2022
(Source: ACE MF)  

Launched in November 1999, ICICI Prudential Equity & Debt Fund has a track record of over two decades to its credit. Being an Aggressive Hybrid Fund, ICICI Prudential Equity & Debt Fund aims to generate long-term capital appreciation and accrual income from a portfolio that is invested in equity and debt securities. The fund has been through various market cycles and has generated returns at around 14.9% CAGR since its inception. Even though it recorded bouts of underperformance, it has certainly met the expectation of its investors in terms of performance over longer time periods. On many occasions, ICICI Prudential Equity & Debt Fund stood among the top performers in the Aggressive Hybrid Fund category and has done reasonably well to outperform the benchmark and many of its category peers over longer time frames. Although the fund’s returns faltered in the recent bear phase, it has done well in the current bull phase to reward its investors with satisfactory gains. Over the past five years, ICICI Prudential Equity & Debt Fund has generated returns of around 14.5% CAGR compared to 11.6% CAGR generated by the benchmark CRISIL Hybrid 35+65 Aggressive Index, thus outpacing the index by around 3 percentage points. An investment of Rs 10,000 in the fund 5 years back would now be worth Rs 19,684, as against Rs 17,310 for the simultaneous investment in the benchmark.

Table: ICICI Pru Equity & Debt Fund’s performance vis-á-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Absolute Fund	762	18.55	36.39	31.72	20.36	18.50	20.09	0.35
Bank of India Mid & Small Cap Equity & Debt Fund	386	2.61	24.77	25.28	11.13	—	20.36	0.28
JM Equity Hybrid Fund	11	11.23	19.10	21.69	11.36	11.15	22.05	0.23
ICICI Pru Equity & Debt Fund	21,109	15.27	32.52	21.52	14.50	16.02	19.57	0.24
Mahindra Manulife Hybrid Equity Nivesh Yojana	571	10.98	23.99	20.31	—	—	16.60	0.26
Kotak Equity Hybrid Fund	3,067	9.94	21.59	18.51	13.08	14.28	18.79	0.22
Edelweiss Aggressive Hybrid Fund	382	10.87	22.18	17.78	13.14	12.92	17.08	0.22
UTI Hybrid Equity Fund	4,478	9.36	22.36	17.51	10.04	11.97	18.39	0.21
HDFC Hybrid Equity Fund	19,131	13.04	21.84	17.07	11.61	13.56	18.33	0.20
Canara Rob Equity Hybrid Fund	8,476	7.24	16.67	16.62	13.12	13.43	15.53	0.21
CRISIL Hybrid 35+65 – Aggressive Index		7.55	15.71	14.67	11.59	12.60	15.35	0.17

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 November 29, 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 Prudential Equity & Debt Fund has a track record of rewarding investors over the long term, even though the fund has at times struggled in shorter time periods. The fund’s performance faltered in 2020, wherein in it trailed the benchmark and many of its peers by a distinct margin. However, ICICI Prudential Equity & Debt Fund has shown significant improvement in performance in the last couple of years. The fund now stands among the top performers in the Aggressive Hybrid Fund category and has seen a boost in performance across time frames. Over the longer period of 3-year and 5-year, the fund has outperformed its benchmark CRISIL Hybrid 35+65 Aggressive Index as well as the category average by around 3-7 percentage points.

Notably, this outperformance has come at higher volatility than the benchmark and many of its category peers. Nonetheless, ICICI Prudential Equity & Debt Fund has managed to reward investors well for the level of risk taken, as denoted by its Sharpe Ratio of 0.24, which is currently among the best in the category and much ahead of the benchmark.

Investment strategy of ICICI Pru Equity & Debt Fund

Categorised under aggressive hybrid equity funds, ICICI Prudential Equity & Debt Fund is mandated to invest 65% to 80% of its assets in equities and 20% to 35% of its assets in debt and money market instruments. ICICI Prudential Equity & Debt Fund invests across market capitalisation, though it maintains a large-cap bias. The allocation depends on the net equity level of the scheme as per the in-house Price to book model followed at the fund house.

ICICI Prudential Equity & Debt Fund adopts a blend of top-down and bottom-up approaches to select stocks based on aspects such as business and economic fundamentals, liquidity/risk considerations, long-term growth prospects, and valuation parameters. The fund also invests some portion in derivatives for portfolio hedging.

For the debt portion, ICICI Prudential Equity & Debt Fund intends to tactically allocate to longer duration fixed income securities with credit rating AA and above, which offer reasonable accrual. It seeks to take exposure in well-researched corporate securities to earn reasonable carry-over wealth. The fund also invests in fixed-income securities issued by the government, quasi-government agencies and corporate and multilateral agencies.

Graph 2: Top portfolio holdings in ICICI Pru Equity & Debt Fund

Holding in (%) as of October 31, 2022
(Source: ACE MF)  

As on October 31, 2022, ICICI Prudential Equity & Debt Fund’s portfolio was diversified over a large base of 59 stocks. The top 10 stocks made up 45.3% of the portfolio. The fund held its top exposure in NTPC, ICICI Bank, Bharti Airtel, Infosys, and ONGC. Clearly, the allocation is skewed to the top holdings, leaving behind a long tail of around 45 stocks with an exposure of less than 1% in each. The fund also keeps slight exposure in stock Rights, Derivative – Futures, REITs & InvITs, and Warrants for the purpose of portfolio hedging.

NTPC, Bharti Airtel, ITC, ICICI Bank, Sun Pharma, and TVS Motor Company are among the stocks that turned out to be major contributors to the fund’s performance in the last 1 year. It has also benefitted from the holdings in Mahindra & Mahindra, Coal India, Hindustan Aeronautics, Axis Bank, and L&T, among others.

ICICI Prudential Equity & Debt Fund’s portfolio is diversified across a wide range of sectors with Banks having the highest allocation of 13.5% with another 5.3% in finance stocks. Infotech, Power, Telecom, and Auto are among the other major holdings of the fund with an allocation between 6% to 9%, along with diversification to Oil & Gas, Petroleum, Metals, Pharma, and Engineering, among others.

The fund’s debt allocation is mainly in G-Secs and Treasury Bills (13.9% of its assets). It also held some allocation in moderate to high-rated corporate debt instruments (5.7% of its assets) and a minor allocation of 0.7% in low-rated corporate debt instruments, which may attract some credit risk. The debt securities in the portfolio carry average maturity of 6-12 years which makes it sensitive to interest rate changes

Suitability

ICICI Prudential Equity & Debt Fund holds a track record of delivering superior performance over longer time periods. The long-term investment focus and prudent risk management strategies adopted by the fund have helped it generate better risk-adjusted returns and benefit investors who aim to stay invested in the fund with a long-term view.

ICICI Prudential Equity & Debt Fund has highly experienced fund managers at the helm. Mr S. Naren is known specifically for his contrarian approach and value style of investing. He has been very successful in picking stocks with a contrarian view.

Mandated to hold a mix of equity and debt instruments, ICICI Prudential Equity & Debt Fund is suitable for cautious investors having moderate to high risk appetite, looking for a growth of equity but at the same time adding the element of stability through significant allocation to debt and money market instruments.

This article first appeared on PersonalFN here