Unleashing The Power Of Focus

Product Review: ICICI Prudential Focused Bluechip Equity Fund

Review Date: 17th October 2016

Bravely launched in during the bloodbath of the 2008 meltdown, ICICI Prudential Focused Bluechip Equity Fund (IPFBEF) has emerged as one of the leading large cap equity funds over the past 8 years. In spite of crossing assets of Rs. 11,500 Crores recently, it remains true to its name; concentrating its portfolio in just 48 stocks, with the top 10 stocks accounting for close to 46% (close to Rs. 5000 Crore) of its portfolio.

Unlike many of its counterparts, IPFBEF doesn't blindly mimic the NIFTY, but rather prefers to maintain a more concentrated holding across high conviction bets.

Performance
Over the past five years, IPFBEF has delivered stellar returns of 15.32% per annum, beating the benchmark by close to 4.5% per annum. Over a 7-year period, the returns are 13.48% per annum - significantly higher than the NIFTY returns of 7.66% annum in the same period.
The fund has an expense ratio of 2.14%, which is more or less along the lines of the category average for large cap funds.

Fund Management Strategy
IPFBEF is managed by Manish Gunwani. A management grad from IIM Bangalore, Gunwani has close to two decades of experience in the financial services industry. Previously, he was a part of the fund management team of ICICI Prudential Portfolio Management Services, managing some of their flagship portfolios.

Alongside IPFBEF, Gunwani manages a number of ICICI Prudential's flagship funds; including ICICI Prudential Balanced Advantage Fund (Equity Portion), ICICI Prudential Export and other Services Fund and ICICI Prudential R.I.G.H.T Fund (Rewards of Investing and Generation of Healthy Tax Savings).

The fund generates alpha primarily through its bottom up stock picking approach, rather than by taking macro bets and 'following the herd'. Risk is mainly managed by strictly following sector deviation limits. According to Gunwani, "the fund's focus is on picking the best bets within each sector by evaluating the business model, management quality and valuation".

IPFBEF isn't averse to out of the box plays if they fit into its broad strategic plan. For instance, the fund had identified some picks from the auto ancillary sector in 2012, along with picks from the insurance space in 2013. These kind of bets have helped the fund consistently outperform its peer group over the past 2-3 years.

Risk Controls & Structure
In today's age of 'mix and match', IPFBEF stands out as a rare instance of a pure play large cap fund, only selecting stocks from among top 100 by market capitalization. This, in itself, acts as a first level risk filter. The second way in which the fund manages risk is by limiting 'sector deviation' from the benchmark. For instance, if Financial Services constitutes 30% of Nifty, the fund will restrict its own exposure to Financial Services to between 25% and 35%; that is, it will not allow a sectoral deviation beyond +/-5%.

The fund's sector deviation restriction strategy seems to have paid off so far, given that it has a Beta of 0.99, implying that it's volatility is just about the same as the NIFTY's. In effect, the fund is as volatile as the NIFTY, but has consistently outperformed it over 3,5 and 7-year time frames.

Play for the next 12-24 months
As an AMC, ICICI Prudential is known to invest time and energy into research. They employ a very robust process for coverage initiation and the subsequent tracking of performance of their stock calls. They do not as such have a specific 'tactical' play for the next 12-14 months, but will rather continue to refine and improve their research process in order to come up with better stock picks in a bottom up manner. Given that the markets are currently in a fair value plus zone, this seems to be sensible.

The Bottom Line
IPFBEF is definitely a top choice 'core' fund, implying that one should ideally invest in it with a time frame of 5-7 years and not attempt to churn money in and out of it. If you're investing a lump sum amount at this stage, it's recommended to stagger your entry via an STP over the next 12-18 months and hold on for another five years thereafter. Don't invest in this fund if you have a time horizon lower than five years.