ICICI Prudential Value Discovery
Category: Equity: Value
Fund Manager: In January last year, the erstwhile manager Mrinal Singh exited the fund house. The fund was taken over by Sankaran Naren, one of the most experienced managers in the Indian mutual fund industry and an ardent practitioner of the value style of investing.
Fund Strategy: Despite the change in manager, the investment strategy remains consistent. Having said that, Naren does bring in his own style of investing. While Mrinal used to construct a compact portfolio, Naren prefers constructing a large and diversified portfolio with a long tail. Yet, he ensures that his high conviction holdings have sizeable representation in the fund. His investment style also entails capitalising from some short-term investment opportunities in the tail portion of the portfolio, an aspect which was completely missing in Mrinal’s investment style. Naren is patient with his high conviction holdings (even when they underperform) if they are fundamentally sound and meet his selection criteria. But he will not hesitate in paring or trimming exposure in a stock if its valuation moves beyond his comfort level.
Market Cap: Naren maintains a predominantly large-cap portfolio. However, he will not shy away from shifting towards mid- and small-cap stocks depending on their relative valuations.
Performance: The fund has outperformed its peers and category benchmark across timeframes by a huge margin. However, in frothy markets, the valuation-driven approach can result in relative underperformance as the case in 2017 and 2019. Also, such an approach may result in value-traps if stocks bought based on attractive valuations continue its downward march.
ICICI Prudential Multi Asset Fund
Category: Multi Asset Allocation
Fund Managers: Because of the fund’s multi-asset approach, different portfolio managers oversee different asset classes. Sankaran Naren and Ihab Dalwai manage the fund's equity investments, which accounts for the majority of the portfolio, with a gross equity level of 65%. Anuj Tagra manages the fixed income investments. The other asset classes are managed between Gaurav Chikane and Sri Sharma. Lead manager Naren has been associated with the fund from a very long time and is regarded as one of the highest caliber investment professionals in the Indian mutual fund industry. He is known for being a contrarian who has the ability to think differently and also has a good understanding of value stocks. He is backed by a strong and a large equity team.
Portfolio: As the name suggest, the fund invests in a combination of asset classes with low correlation of returns which helps to cushion the portfolio from downturn in a particular asset class. Investments across equity, fixed income and Gold ETF, are such that each asset class has a minimum 10% allocation at all times. The other asset classes are more of a residual allocation to small tactical calls in commodity, REITs and preference shares.
Strategy: The portfolio managers dynamically manage the equity and debt portion based on attractiveness and market views. Naren uses the counter cyclical approach to pick sectors which have done badly but have a good long-term outlook. As a result, there is a notable sectoral deviation relative to the benchmark. Stock-picking process is through bottom-up approach. The team look for companies with above-average profitability supported by sustainable competitive advantages. The fund is well diversified across 48 stocks and the top 10 stocks constitute 40% of the portfolio. The fund also takes exposure to covered calls for yield enhancement but to a limited extent.
ICICI Prudential Medium Term Bond Fund
Category: Medium Duration
Performance: The fund boasts a strong long-term track record as it features in the category’s top performance quartile over 3 and 5 year time frames. It has also delivered a superior risk-adjusted performance.
Investment approach: There is no mandate governing the credit exposure of funds in this category. Hence, the category houses varied strategies, credit as well as non-credit, competing with one another.
Broadly, this is a conservatively managed credit fund where the strategy entails having a good mix of AAA and AA rated securities. Hence, extensive credit bets are avoided.
This fund is governed by a clearly defined and structured framework. The team on the credit side has a well-organized structure. It has different sub-teams, and each team is assigned a task, which is integral to credit-oriented strategies. This reduces dependency on fund manager and promotes a team-based investment approach. The focus is on achieving long-term sustainable and consistent performance rather than chasing short-term trends.
The investment processes have been sharpened. For instance, a security is added in the investment universe only after the board’s approval. Also, the investment process is largely institutionalized, which makes it easier for a manager to execute it.
This approach has helped the team to identify and avoid riskier credits even if they had high credit rating. Hence, it’s not surprising that the fund emerged from the credit crises in the Indian debt markets largely unscathed.
Funds from this category can have Macaulay Duration typically in the range of 3-4 years. In the past, this fund used to have 65-70% of assets in AA segment. Learning from what transpired in 2019 and 2020, going ahead, the strategy will be more flexible with respect to AA exposure which would be managed in the range of 40-70%, and that would depend on the liquidity and spread outlook.
Subsequently, the fund’s modified duration has largely been maintained between 2 to 3.5 years.
The team’s preference for safety over outsized return and its willingness to forgo high yielding investment opportunities, which could expose the fund to unwarranted risk, points towards a disciplined investment approach. This makes it a good choice for investors, but only those, who can withstand the risks associated with credit strategies.