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

ICICI Pru Focused Equity Fund is a relatively small-sized Focused Fund that has demonstrated an impressive improvement in performance in recent years without exposing the portfolio to high risk. It looks to identify high-conviction ideas across market caps and sectors while emphasising on valuation.

What is the growth of Rs 10,000 invested in ICICI Pru Focused Equity Fund five years ago?

Past performance is not an indicator of future returns
Data as of February 28, 2024
(Source: ACE MF, data collated by PersonalFN) 

ICICI Pru Focused Equity Fund is a Focused Fund designed to grow investors’ wealth through a concentrated portfolio of a maximum of 30 stocks spanning across market caps. Initially 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 primarily held a portfolio of large-cap stocks. However, after being re-categorised as a Focused Fund in 2018, ICICI Pru Focused Equity Fund gained the flexibility to invest across large-cap, mid-cap, and small-cap stocks, although its portfolio remains predominantly focused on large caps.

The fund aims to identify fundamentally sound companies with robust balance sheets, high-quality sustainable cash flows, and low leverage. ICICI Pru Focused Equity Fund takes a sector-agnostic approach, with weightage decisions made based on the sectors/themes’ potential to outperform the broader markets. Backed by a fund house that is known for a stable investment process and an experienced fund manager who favours value and contrarian investment styles, ICICI Pru Focused Equity Fund generally avoids momentum-driven stocks and sectors.

This strategy enables the fund to mitigate the downside risk during challenging market conditions while enabling participation in market recoveries and bull phases. Notably, ICICI Pru Focused Equity Fund witnessed weak growth between 2017 and 2019 due to its low exposure to certain stocks that drove the benchmark index rally. However, the fund demonstrated significant improvement in performance from the year 2020 onwards to find a place among the top performers in the Focused Fund category.

Over the past five years, ICICI Pru Focused Equity Fund has grown at a compounded annualised rate of 21.8%, surpassing the benchmark returns of 18.9% CAGR. An investment of Rs 10,000 in ICICI Pru Focused Equity Fund five years back would now be worth Rs 26,765 as against Rs 23,762 in the S&P BSE 500 – TRI index.

How has ICICI Pru Focused Equity Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
HDFC Focused 30 Fund	9,317	24.97	23.07	32.53	16.30	14.96	13.79	0.44
Quant Focused Fund	656	20.01	14.64	28.42	17.46	16.13	16.85	0.35
Franklin India Focused Equity Fund	10,643	18.61	14.09	27.87	16.64	15.58	14.67	0.29
Nippon India Focused Equity Fund	7,780	16.36	12.61	27.29	15.67	15.12	15.04	0.24
Mahindra Manulife Focused Fund	1,102	22.56	16.76	27.23	—	—	13.92	0.41
ICICI Pru Focused Equity Fund	6,823	21.66	15.31	26.46	16.60	15.24	13.65	0.35
360 ONE Focused Equity Fund	6,266	21.66	13.18	25.49	20.72	18.39	14.41	0.28
Tata Focused Equity Fund	1,611	19.01	13.07	25.04	—	—	14.34	0.29
Kotak Focused Equity Fund	3,094	15.29	10.75	22.66	—	—	14.13	0.24
Sundaram Focused Fund	992	16.57	10.01	22.33	15.91	15.25	14.70	0.22
S&P BSE 500 – TRI		16.50	11.44	23.54	14.56	14.91	14.47	0.26

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of February 28, 2024
(Source: ACE MF, data collated by PersonalFN)
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 Pru Focused Equity Fund has shown a remarkable performance turnaround in recent years, positioning itself as one of the top performers in the Focused fund category. Although the fund has encountered intermittent periods of underperformance, its long-term performance is reasonable. Notably, ICICI Pru Focused Equity Fund’s superior growth in the last couple of years has helped it to outpace the benchmark and many of its peers by a noticeable margin.

In the last 1-year, ICICI Pru Focused Equity Fund has outpaced the benchmark and the category average by around 4 and 5 percentage points, respectively. Moreover, the fund has also outscored many of its peers over the longer time period of 3 years, 5 years, and 7 years.

In terms of volatility (standard deviation), ICICI Pru Focused Equity Fund exhibits one of the lowest levels within the Focused fund category, and considerably lower than the benchmark. Additionally, its Sharpe ratio (0.35), which measures risk-adjusted returns, currently ranks among the best in the category and significantly surpasses the benchmark.

What is the 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 the 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.

What are the top portfolio holdings in ICICI Pru Focused Equity Fund?

Holding in (%) as of January 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

Being a Focused Fund, ICICI Pru Focused Equity Fund maintains a concentrated portfolio comprising 30 stocks at any given time. As of January 31, 2024, ICICI Pru Focused Equity Fund held 29 stocks in its portfolio diversified across sectors. The fund held its top exposure in large-cap names like ICICI Bank, Sun Pharma, Reliance Industries, Infosys, and Bharti Airtel. Avenue Supermarts, Siemens, L&T, SBI Life Insurance Company, and NTPC are among the other top stocks in the fund’s portfolio.

The top 10 holdings in the fund’s portfolio collectively account for about 50% of the total assets. With a focus on long-term investments, ICICI Pru Focused Equity Fund typically maintains stocks in its portfolio with a long-term view. Accordingly, the fund has exhibited a moderate turnover ratio ranging between 70% and 120% in the last one year.

Over the last 2 years, ICICI Pru Focused Equity Fund has benefitted the most from its exposure to TVS Motor Company, L&T, The Phoenix Mills, Bharti Airtel, and Sun Pharma that have helped it generate significant gains for investors. ICICI Pru Focused Equity Fund also benefitted from ICICI Bank, Reliance Industries, Ultratech Cement, SBI Life Insurance Company, among others that have grown significantly in value since the time the fund added them to the portfolio.

ICICI Pru Focused Equity Fund’s portfolio is skewed towards Financials, Pharma, and Engineering that collectively form nearly 50% of its assets. Infotech, Auto, Petroleum, Telecom, and Construction are among the other prominent sectors in the fund’s portfolio. Around 81.2% of its portfolio is spread across the 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.

Is ICICI Pru Focused Equity Fund suitable for my investment goals and risk tolerance?

ICICI Pru Focused Equity Fund has demonstrated remarkable improvement in its performance over the past few years and has emerged as one of 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 surpassed the benchmark and many of its peers by a wide margin during certain periods, delivering higher returns for investors in the scheme. More importantly, ICICI Pru Focused Equity Fund has achieved this feat while maintaining a controlled level of volatility and has rewarded investors with superior risk-adjusted returns.

ICICI Pru Focused Equity Fund adopts a sector-agnostic approach and maintains diversification across sectors at all times. The fund managers decide the stock, sector, and market cap allocation based on their conviction, taking into consideration factors such as valuations, business model, financial strength, management ability, etc. With a predominant focus on large-cap stocks, ICICI Pru Focused Equity Fund has the potential to generate stable returns without exposing investors to excessive risk.

ICICI Pru Focused Equity Fund is suitable for Investors seeking 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