The Hindu Business Line : PruICICI Discovery Fund: Invest

INVESTORS looking for a variation to their portfolio of growth stocks can consider exposure to the PruICICI Discovery Fund (NAV: Rs 21.7). The fund's performance since launch in July 2004 has been noteworthy. Investors can retain holdings.

PruICICI Discovery has an investment objective of capital appreciation and dividend income by discovering and investing in value stocks. These are typically stocks that are not fully priced and have attractive valuations in relation to earnings or book value. The average price-earnings ratio of the portfolio is about 14. This appears attractive in comparison to the broad market valuations and reflects the fund's attempt to stick to its mandate. PruICICI Discovery has a track record of less than a year and a half and has predominantly witnessed only a bull market. The lack of a track record over various market phases makes it a riskier option than funds with a longer track record. However, if the fund sticks to its objective of value investing, the downside in a weak phase is likely to be limited.

PruICICI Discovery has a diversified portfolio of about 65 stocks. The top ten stocks accounted for 35 per cent of the net assets as of December 2005.

Over the last quarter, the fund has balanced its holding of large- and mid-cap stocks. About 35 stocks at present have a market capitalisation of over Rs 2,000 crore each. This is a shift from the tilt towards mid-caps seen in the September portfolio.

The strategy is likely to mitigate the risks of a volatile market, such as the present one, and make the fund less risky than a mid-cap focussed fund.

The sector-wise allocation also appears well diversified. Allocation to a sector has seldom exceeded 10 per cent. Allocation to the auto sector continues to be the highest, although exposures have reduced over the past couple of months. Auto ancillaries have received increased weight with unconventional picks such as Jay Bharat Maruti. This rejig offers better upside potential. Petroleum products have caused a slight drag on the portfolio returns, prompting the fund to cut exposure to the sector.

Recently listed stocks such as Punj Lloyd and Tulip IT Services find a place in the portfolio now. These stocks have listed at a premium of more than 50 per cent.

Performance: The fund has returned 72 per cent since inception, comfortably beating its benchmark index, the S&P CNX Nifty. The last year's performance is also superior to value-based funds such as UTI Master Value and Tata Equity P/E. Investment can be considered through a systematic investment plan to take advantage of any market declines.