Focused Funds focus on investing in a limited number of stocks (maximum 30) where the fund manager has high conviction. The fund managers of Focused Fund aim to identify stocks that have high growth potential and take concentrated exposure in them.
Focused Mutual Funds aim to reduce concentration risk by diversifying the portfolio across market caps and sectors. So, if you are looking to benefit from the growth potential of high-conviction ideas, consider investing in Focused Funds.
ICICI Pru 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 February 07, 2023
(Source: ACE MF)
Launched as a Large Cap Fund in May 2009, ICICI Pru Focused Equity 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 13.4%, higher than the 11.6% CAGR delivered by its benchmark. An investment of Rs 10,000 in ICICI Pru Focused Equity Fund five years back would now be worth Rs 18,715 as against Rs 17,360 in the S&P BSE 500 – TRI index.
Table: ICICI Pru Focused Equity Fund’s performance vis-á-vis category peers
|Quant Focused Fund
|ICICI Pru Focused Equity Fund
|HDFC Focused 30 Fund
|Nippon India Focused Equity Fund
|Franklin India Focused Equity Fund
|IIFL Focused Equity Fund
|Mirae Asset Focused Fund
|Union Focused Fund
|Tata Focused Equity Fund
|Sundaram Focused 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 February 07, 2023
(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 of future returns. The percentage returns shown are only for indicative purposes.
ICICI Pru Focused Equity Fund has shown a turnaround performance and now stands 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 to 3-year periods, ICICI Pru Focused Equity Fund has outpaced the category average by around 4 to 7 percentage points. Moreover, the fund now stands among the top quartile 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 ratio (0.24), a measure of risk-adjusted return, is currently among the best in the category and much better than the benchmark. The fund is well capable of generating sound returns and compensating investors with superior risk-adjusted returns.
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 a 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 the 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 December 31, 2022
(Source: ACE MF)
Over the last 2 years, ICICI Pru Focused Equity Fund has benefitted the most from its exposure to Sun Pharma, Bharti Airtel, NTPC, and Infosys, that have helped it generate significant gains for investors. It booked profit in Tube Investment of India, Dixon Technologies (India), Mahindra & Mahindra, Mazgaon Dock Shipbuilders, Bajaj Auto, Schaeffler India, Brigade Enterprises, Coforge, SRF, Nazara Technologies, Max Financial Services, among others.
ICICI Pru Focused Equity Fund’s portfolio is skewed towards Financials, with Banks carrying around 21.7% weightage in the portfolio, with another 15.1% in Finance stocks. It also holds significant exposure to Auto, Pharma, Infotech, Consumption, Telecom, Construction, Engineering, Cement, and Petroleum, among others. 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.
Veteran fund manager, Mr S Naren, has recently taken the reigns of the scheme. He is well-known for timely identifying value and contrarian bets. Under his supervision, ICICI Pru Focused Equity Fund can continue to maintain its position as the top performer in the category. 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 for a large-cap oriented Focused Fund with an investment horizon of at least 5 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