Launched in 2008, the annus horribilis for global markets courtesy the global financial crisis, ICICI Pru Bluechip Fund literally had a trial by fire. Over the last 15 years, the large-cap fund has emerged the biggest actively-managed scheme in its category courtesy a decent performance.

Having multiplied your money seven-fold since inception, the key question today is, will the marquee fund be able to withstand the onslaught of passive rivals (index funds and ETFs) --- the proverbial barbarians at the gate?

Truth be told, a significant number of actively-managed large-cap funds have found the going very tough in recent years as they have failed to match up against benchmarks, especially after SEBI categorisation norms and use of the total return index variants for benchmarking.

Fund basics

Launched on May 23, 2008, ICICI Prudential Bluechip Fund is an open-ended equity scheme that predominantly invests in large-cap stocks. It aims to maintain a minimum exposure of 80 per cent towards equity and equity related instruments of large-cap companies. The large-cap category is generally less volatile than most other equity scheme categories.

The large-cap equity scheme has been positioned as one that focusses on stocks in which the fund manager has high conviction. All actively-managed large-cap funds have the same universe i.e. top 100 stocks by market capitalisation. Funds that pick better stocks and assign proper weights do better than others.

The scheme adopts a benchmark sector-neutral approach to keep the portfolio well diversified across sectors.

The fund maintains a portfolio with a predominantly “buy and hold” approach. It is known to take aggressive positions in high-conviction stocks with the aim to generate alpha.

Stock selection is based on a bottom-up approach. This has largely remained unchanged over the last 15 years amid trade wars, taper tantrums, geopolitical tensions and interest rate cycles.

As compared to the benchmark, currently, the portfolio is overweight in auto, industrial products, capital goods and telecom

Historical returns

ICICI Pru Bluechip was launched on May 23, 2008. As on May 31, 2023, the scheme has outperformed the Nifty 100 TRI and the actively-managed large-cap fund category across all timeframes i.e. – since inception, 1 year, 3 years, 5 years and 10 years (see table).

Since its inception, the scheme (direct plan) has delivered a compounded annual growth rate (CAGR) of over 14 per cent. This means that Rs 1 lakh invested during the NFO of the scheme has grown to over Rs 7 lakh in this period. In comparison, investing Rs 1 lakh in the benchmark could have fetched the investor Rs 4.68 lakh.

Most retail investors hold large-cap funds as part of their core investment portfolio. Given that SIPs (systematic investment plans) are the preferred route to investing in mutual funds, let us see how ICICI Prudential Bluechip Fund has scored in this aspect. An SIP in the scheme since its inception would have delivered a CAGR of over 14 per cent to investors. If Rs 10,000 were invested in the scheme every month for 15 years, an investment of Rs 18 lakh would have grown to more than Rs 56 lakh. Across time periods, SIP returns appear good (see table).

Challenge of passive products

The advent of passive mutual fund products has changed the large-cap fund landscape significantly. Only 15-36 per cent of regular plans (more expensive) of large-cap funds are able to beat their respective benchmark indices in the 3, 5 and 10-year time periods. Direct plans (less expensive) fare better (37-68 per cent).

When it comes to beating the benchmark (alpha creation), large-cap funds as a category fare poorly compared to mid-cap and small-cap funds. This has become more prominent, with a spate of index funds and ETFs tracking large-cap indices, and benchmarks have been tough to beat.

Though long-term products such as mutual funds should not be assessed based on annual reurns, the challenges posed by passive products can be seen when you look at the large-cap fund category and the ICICI Prudential Bluechip Fund’s calendar year returns versus the benchmark (Nifty 100 TRI). Below is a table depicting the same and the funds’ returns are for its direct plans.

In 2020, 2021 and 2022, the Nifty 100 TRI has gotten the better of the large-cap category. Again, barring 2019, the trend was similar for 2016, 2017 and 2018. Of the nine completed calendar years, ICICI Pru Bluechip has generated alpha in six years. The fund lagged the benchmark in 2018, 2019 and 2020. On the whole, the fund has managed the challenge posed by indices so far.

With Nifty 100 index funds and ETFs charging expense ratios of 10-60 basis points, the premium charged by ICICI Pru Bluechip (110 bps) can seem high. How this premium is justified by actively-managed funds remains to be seen. One, the fund’s historical relative performance against peers. ICICI Pru Bluechip, barring 2018, 2019 and 2020, has over the years remained amongst the upper-mid and top quartile performers. Two, the historical alpha generated by the fund is good, but unless this margin is maintained, investors would look to shift to low-cost passive options.

Our take

Despite the ICICI Pru Bluechip Fund’s rising asset size (AUM), the Rs 37,000-crore fund has so far held its own against the challenges posed by passive products and has generated alpha. Given the fund’s historical track record, bl.portfolio Star Track MF Ratings assigns its 5 stars. For investors building an investment portfolio, ICICI Pru Bluechip can be considered for the core part of the portfolio.

What has worked
Picking high conviction stocks
Active portfolio management
Benchmark sector neutral approach