Mid-cap funds are usually prone to sharp swings in returns, very few of them making the cut on consistency and riding out volatile phases in the market. ICICI Pru Value Discovery fares well on this count with its adept churn of sectors and stocks.
It has a portfolio that is well-anchored to value so you do not deal with bubbles in stocks or sectors, which can pop and leave you with steep losses or the subsequent bursts that so many schemes in the category are prone to. Over one-, three- and five-year timeframes, ICICI Pru Value Discovery has beaten its benchmark, the CNX Midcap, by margins of as much as 10-14 percentage points. It has also done better than the category over this period.
Its return of nearly 31 per cent, annually, over the past five years places it at the top of the charts. It is one of the few quality mid-cap funds, along with IDFC Premier Equity, HDFC Mid-cap Opportunities, and, in recent years, Franklin India Smaller Companies, which have consistently outpaced benchmarks.
The muted return in the last one year was largely because it did not go overboard on momentum stocks. Identifying undervalued stocks, taking cash calls during volatile markets and rotating holdings have helped.
Portfolio and strategy ICICI Pru Value Discovery manages to contain downsides as much as its benchmark during falls, but delivers superior returns during rallies. Investors who can take medium to high risk, with a horizon of seven-ten years, can consider the scheme for the core portion of their portfolio.
The SIP (systematic investment plan) route can be taken to better ride out market volatility.
The scheme does not take too much exposure to small-cap stocks and generally restricts itself to quality mid-cap stocks. Its value focus and, to some extent, and its ability to spot potentially underperforming sectors have aided its out-performance.
ICICI Pru Value Discovery reduced its exposure to banks significantly from 2011 to about late 2013. In recent times though, it has steadily increased stakes as the beaten-down segment appears set for a revival in fortunes.
It boosted exposure to software stocks in early 2013 and rode out the subsequent rally well. Auto ancillary is another segment where the fund increased exposure over the past year, which aided performance.
Exposure to individual stocks is generally lower than 5 per cent. In volatile markets, debt exposure has gone over 10 per cent at times, which provides added comfort against slides.
Some large-caps such as Reliance Industries, ICICI Bank and SBI too find a place in the portfolio, apart from Exide Industries, Mindtree, Amara Raja, PI Industries, and Voltas.