Mutual Funds

Ability to check downsides, a plus

K. Venkatasubramanian | Updated on February 19, 2011 Published on February 12, 2011

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Investments can be considered in the units of ICICI Pru Growth Fund (ICICI Growth), given its long-term track record in delivering steady returns. Given the current volatility in the market and the resultant adverse impact on mid-cap stocks, a portfolio focussed on large-caps may better serve an investor with a relatively low risk appetite.

ICICI Growth has bettered the returns generated by its benchmark Nifty, over one-, three- and five-year periods. In the last five-years, the fund delivered a compounded annual return of 12.8 per cent, which places it in the mid-quartile in the performance chart in its category.

The fund contains downsides well during periods of heavy market fall, but may not participate fully in sharp rallies. Over one- and three-year periods it has bettered peers such as SBI Bluechip and Principal Large Cap and even some of the most popular funds that have a similar large-cap mandate. Investors can take exposure through the systematic investment (SIP) route to ride out market volatility.

Performance and strategy: During periods of market falls, such as that experienced in January-May 2004, May-June 2006, early 2007 or in the protracted correction of 2008-09, ICICI Growth has fallen 1-6 percentage points less than its benchmark. Even in the market correction over the past couple of couple of months, the fund has done better than the Nifty.

But during periods of bull-run such as those witnessed in 2007 or the prolonged upswing from March 2009, the fund has not been able to significantly benefit from the rally.

ICICI Growth invests only in large-cap stocks, predominantly picked from the Nifty stable. The fact that the fund had avoided mid-cap stocks completely means that it has not been able to benefit in a broader market rally. The uptick in the market during part of 2006 and much of 2007 was led by mid-cap stocks, which the fund was not able to gain from. But in the current scenario, a large-cap focus on companies with reasonable earnings visibility and less volatile compared to broader market gyrations may be a desirable path to take for investors with a lower penchant for risk.

ICICI Growth goes into reasonably high levels of cash position at the first signs of market volatility. Testimony to this is that in the fluctuating and correcting markets of the last couple of months, the fund has nearly 8 per cent in cash and derivatives.

During steep market declines of October 2008-March 2009, the fund had as much as 33 per cent of its portfolio in cash and derivatives, a decision that helped it stem the tide and contain downsides reasonably. But the (re)deployment into equities was delayed, leading to underperformance during short and swift rallies.

Banks have always been the most favoured sector for the fund.Other top holdings include sectors such as petroleum and software. In 2009-10, higher exposure to telecom and power and a lower exposure to automobiles and pharma meant underperformance as the performance of these sectors ran contrary to the fund's expectations. In recent months, though, exposures have been increased to pharma and automobiles.

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Published on February 12, 2011
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