ICICI Prudential US Bluechip Equity

ICICI Prudential US Bluechip Equity will be celebrating its first anniversary in a few weeks’ time. The fund, as the name suggests, directly invests in blue-chip companies listed on the US stock exchanges.

Given that domestic markets are correcting and are quite volatile, it may be worth looking at the US markets in the light of the improving economic data there and also buoyant markets.

The fund employs both a top-down and bottom-up approach in stock selection without any specific sector bias. The AMC has tied up with Morningstar Equity Research Services (MERS) for stock research services.

The fund is suitable for investors looking for international diversification and capturing growth opportunities of US blue-chip companies.

The fund helps strengthen a portfolio by investing in equity and equity related securities of a market with low correlation to Indian markets. It also provides opportunities to invest in companies as well as established industries that may not be available in India.

Nevertheless, currency-based risk is involved in this fund. If the rupee begins strengthening, it could affect the fund’s returns.

But, currently the rupee has been drastically depreciating against the dollar, registering its all-time low only recently. A depreciating rupee helps the fund to boost its returns.

Bettering the benchmark

The fund has consistently outperformed its benchmark index S&P 500. Over one-, five- and ten-month periods, the fund delivered returns of 5, 18 and 21.7 per cent, beating the benchmark by 6-7 percentage points.

We take a look at its sector and stocks choices over the last ten months to assess what has determined its outperformance.

The fund has a compact portfolio, with exposure to 20-25 bluechip stocks in a wide variety of well-established sectors. In its May 2013 portfolio, it has exposure to 23 stocks and 18 sectors.

The fund decreased its short-term debt holdings from approximately 8.1 per cent in August 2012, when it was formed, to 3.9 per cent in May 2013.

Aggressive churn

The fund has been persistently churning sectors. For instance, over the course of just about a year, it exited communications equipment, hotels & restaurants, and Internet software & services.

It instead picked up apparel, computers & peripherals, healthcare equipment & supplies and machinery industry.

Within sectors too, stocks have been aggressively churned. In August last year the fund was heavily invested in financials with an 11.5 per cent allocation distributed among three stocks — Bank of New York Mellon, Franklin Resources and Northern Trust.

The fund trimmed its exposure in this sector to 4.7 per cent by December 2012 with full allocation only to Bank of New York Mellon shares.

Similarly, in the defence and aerospace sector, the fund shifted from the stock of United Technologies to General Dynamics Corp with a 4. 9 per cent exposure to the latter.

Warren Buffett’s Berkshire Hathaway Inc, which is engaged in insurance businesses, is the fund’s top holding, though exposure has been marginally trimmed from 7.6 per cent to 6.1 per cent in May 2013.

The fund added Apple Inc to its portfolio in December 2012, which most fund houses hold. It has a 3.2 per cent allocation in Apple.

Top sector holdings in the fund are air freight & logistics, semiconductors and software with exposures of 8.9, 8.3 and 8.3 per cent, respectively.

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