Welcome to  PersonalFN’s weekly analysis on diversified equity mutual funds. In this issue, we have analysed ICICI Pru Value Discovery Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

ICICI Pru Value Discovery Fund is the largest scheme in the Value Fund category managed by veteran fund manager Mr Sankaren Naren. It is a true-to-style value fund that has delivered superior performance across various market phases and cycles.

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 June 07, 2023
(Source: ACE MF)  

ICICI Prudential Value Discovery Fund is a true-to-style value fund that aims to discover and invest in stocks trading at a discount to their fair/intrinsic value. Since its inception in August 2004, this value-oriented fund has lived up to its name by picking high-potential undervalued stocks across market caps and sectors and has appreciated at a CAGR of nearly 20% . The focus on value-buying opportunities and prudent investment strategies followed by ICICI Prudential Value Discovery Fund have resulted in significant gains for its long-term investors. Moreover, its ability to deliver superior performance over longer time periods has made it one of the popular schemes among investors. Holding a corpus of Rs 28,471 crore (as of April 2023), ICICI Prudential Value Discovery Fund is currently the largest scheme in the Value Fund category. ICICI Prudential Value Discovery Fund stood strong during the market crash of 2020 and also participated in the ensuing bull phase, thereby outperforming the benchmark and almost all its value category peers by a significant margin. In the last 5 years, ICICI Prudential Value Discovery Fund has grown at a CAGR of 16.1% compared to a growth of 12.7% in its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in the fund five years back would now be worth Rs 21,059, while a simultaneous investment in its benchmark would now be valued at Rs 18,216.

ICICI Prudential Value Discovery 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
Bandhan Sterling Value Fund	5,430	23.78	17.73	42.42	14.40	17.75	18.59	0.54
Templeton India Value Fund	954	25.16	17.81	36.71	13.93	15.31	18.77	0.48
HSBC Value Fund	8,088	24.56	15.31	31.04	13.51	15.54	16.06	0.45
ICICI Pru Value Discovery Fund	28,471	18.99	17.43	30.43	16.05	15.06	14.22	0.51
JM Value Fund	168	29.80	15.79	30.12	14.46	16.53	16.65	0.43
Nippon India Value Fund	4,833	19.41	12.78	30.08	14.07	15.67	16.99	0.42
Aditya Birla SL Pure Value Fund	4,038	24.60	10.38	29.28	7.44	11.66	18.65	0.37
HDFC Capital Builder Value Fund	5,382	19.89	12.55	27.75	11.28	13.89	15.88	0.41
Tata Equity P/E Fund	5,360	21.92	14.47	25.33	11.49	15.56	14.40	0.41
UTI Value Opp Fund	6,815	17.73	10.39	25.19	13.29	13.48	15.44	0.39
NIFTY 500 – TRI		16.03	10.20	25.77	12.74	14.13	16.18	0.38

The securities quoted are for illustration only and are not recommendatory
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 June 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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

ICICI Prudential Value Discovery Fund has been a top quartile performer in the value style fund category across time frames. After witnessing a pro-longed underperformance between 2016 to 2019, the fund benefitted immensely from the substantial recovery witnessed in the value investment segment and has recorded a superior performance in the last couple of years. In the last 2-year, and 3-year time periods, ICICI Prudential Value Discovery Fund has outperformed the benchmark Nifty 500 – TRI by a margin of around 5-7 percentage points and has also outpaced the category average by a significant margin. Even over the longer periods of 5-years and 7-years, the fund has managed to generate a decent lead over the benchmark and the category average.

The fund’s strategy of staying away from momentum-driven bets helps reduce the risk and enables it to outperform the benchmark and its peers. Consequently, ICICI Prudential Value Discovery Fund stands out in terms of risk-adjusted returns. Its volatility, as denoted by the Standard Deviation (14.22%), is the lowest in its category and much lower than the benchmark. Moreover, its Sharpe ratio (0.51) is currently among the best in the category and far ahead of the benchmark.

Investment strategy of ICICI Prudential Value Discovery Fund

ICICI Prudential Value Discovery Fund is a typical value-style fund that endeavours to invest in stocks of companies available at a significant discount to their fair valuation. The scheme’s investment strategy is based on the fact that the market does not always efficiently match a stock’s price with its intrinsic value. The fund adopts a ‘Bottom-up’ strategy, to identify and select undervalued stocks based on an evaluation of several parameters such as historic performance, earnings, book value, free cash flow, and dividend yield. Management, business competitiveness, and growth prospects of companies are a few other aspects that are considered by the fund manager.

ICICI Prudential Value Discovery Fund is mandated to invest at least 65% of its assets in equity & equity related instruments while the balance can be in debt and cash. It also has the flexibility to invest some portion in offshore equities. The fund strictly sticks to its investment mandate and prefers to stay fully invested in equities. ICICI Prudential Value Discovery Fund aims to maintain a well-diversified portfolio with the flexibility to invest across market caps and sectors. The fund maintains a large-cap bias, wherein it allocates around 65-75% of its assets. It also holds substantial allocation to mid-cap and small-cap stocks depending on the attractiveness of the valuation in each of these segments.

Top portfolio holdings in ICICI Prudential Value Discovery Fund

Holding in (%) as of April 30, 2023
(Source: ACE MF)  

ICICI Prudential Value Discovery Fund ‘s portfolio is usually diversified across 60 to 70 stocks. As of April 30, 2023, the fund held 70 domestic equities along with a few overseas equities. The top 10 holdings accounted for around 47.2% of its total assets. Sun Pharma is currently the top equity holding in the fund’s portfolio, closely followed by ONGC, NTPC, ICICI Bank, and Bharti Airtel. ICICI Prudential Value Discovery Fund also holds some exposure to Rights. The fund has recorded a moderate turnover rate of 55-85% in recent months.

ICICI Prudential Value Discovery Fund currently holds an allocation of about 5.1% in overseas equities holding stocks of companies such as Viatris Inc. and British American Tobacco Plc., and ADRs/GDRs of Vodafone Group Plc.

In the last two years, ICICI Prudential Value Discovery Fund has benefited the most from its holdings in Sun Pharma, Mahindra & Mahindra, NTPC, ITC, and Bharti Airtel that have together contributed over 20% to its absolute gains in the last two years. The fund has also gained from its exposure to ICICI Bank, ONGC, Axis Bank, SBI, The Great Eastern Shipping Company, and HCL Technologies among many others.

ICICI Prudential Value Discovery Fund’s portfolio is well-diversified across Cyclical, Defensive, and Sensitive sectors. Around 13.9% of the fund’s assets are allocated to stocks in the Banking sector with another 9.9% in Finance. It also holds substantial exposure to Pharma, Power, Infotech, Oil & Gas, Auto, and Telecom having allocation in the range of 5-11%. The top 5 sectors account for about 49.4% of its assets.

Suitability

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 help 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 a high-risk profile and an investment horizon of at least 5-7 years.

This article first appeared on PersonalFN here