Investors can buy units of ICICI Pru Dynamic Plan, given its ability to bring steady returns and also contain losses during market downturns.

The fund has a reasonable track record, outperforming its benchmark, the Nifty, over three- and five-year time-frames.

Over a five-year period, the fund has given a compounded annual return of about 8 per cent. This places it in the top quartile in the performance chart of diversified equity funds.

Suitability

ICICI Dynamic has a mandate that allows it to straddle across large and mid- and small-cap stocks as well as to move to cash/debt positions even to the extent of 100 per cent of its portfolio.

Due to this strategy, the fund may not deliver top-of-the-class returns during bull runs.

As it is difficult to precisely time the market, higher cash or debt holdings during a rally could cap returns. Being invested in cash, however, may help contain downside during market corrections.

The correction from January 2008 to March 2009 is a case in point. While its benchmark, the Nifty, fell by 59 per cent, the fund contained losses to 53 per cent.

At the same time, in the rally that followed till November 2010, the fund beat its benchmark, but delivered a modest 153 per cent gain, placing it below several other diversified funds.

Performance

Hence this fund is suitable for those with a low-to-medium risk appetite and moderate return expectations.

The fund has delivered returns of about 4 per cent, 12 per cent and 8 per cent over one-, three- and five-year periods. In each case, ICICI Dynamic’s returns surpassed the category average returns.

While the returns have bettered the Nifty over three- and five-year timeframes, they have just matched the benchmark in the last one year.

One reason could be that the fund was not fully invested in the market, considering the volatility.

During the last one year, cash holdings have ranged 7-24 per cent. Besides, the fund’s sector choices could have hurt performance.

For example, many funds benefited by increasing exposure to the defensive FMCG sector in the last one year. ICICI Dynamic’s FMCG exposure remained less than one per cent throughout this period.

That said, its year-to-date return of about 18 per cent beats the Nifty returns of 15.5 per cent for the same period as increasing equity holdings helped regain returns.

Portfolio

As of July 2012, ICICI Dynamic had a portfolio of 63 stocks. And 29 stocks, accounting for about two-thirds of the total assets, are large caps (over Rs 7,500 crore market cap).

This bias towards large caps seems best suited at this point in time for a couple of reasons: one, these companies are less hurt in a high interest rate scenario.

Two, many large-cap stocks fell more than mid-caps in the last correction and offer attractive valuations in relation to their earnings growth.

The fund still holds 11.5 per cent in cash suggesting that it may yet be waiting for more opportunities to invest.

Software and Banks have been the preferred sectors over the last one year.

The NAV per unit of the growth option is Rs 104.49.

(This article was published on August 11, 2012)
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