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Investments with a three-year horizon can be considered in units of ICICI Prudential Top 100 fund (Top 100).
The fund has been a consistent performer in the large-cap space and has emerged as a top-performing fund over the last one year.
The three- and five-year annualised returns of the fund were 9.6 per cent and 7.4 per cent respectively, compared with the 6.1 per cent and 5.4 per cent returns of the benchmark S&P CNX Nifty in the above periods.
This fund was earlier called ICICI Pru Growth. Its name was changed to reflect the strategy better.
Suitability
Top 100 is suitable for conservative investors who wish to contain declines in their portfolio.
As there are funds such as Franklin Bluechip and DSPBR 100 that have delivered superior returns over the long term, these funds are preferred for the core of a long-term wealth-building portfolio.
This fund may best serve as a diversifier. Investments have to be made with a long-term horizon. Systematic investment plans will be a preferred route.
Performance
The fund has managed to contain downside better than its benchmark during periods of market correction (from January 2008 to March 2009 and November 2010 to December 2011). The historical beta (over five years) of the fund is 0.9 — indicative of the fund’s lower volatility in relation to its benchmark.
On the other hand, the risk-adjusted return as measured by sharpe ratio is also high at 0.13 compared with CNX Nifty’s sharpe ratio of 0.09 (the risk-free rate was assumed at 7 per cent).
This indicates that the fund has delivered superior returns while assuming lower risks than a passive index.
The fund also takes derivative positions to reduce the volatility in its returns.
While the short positions taken by the fund may not be known in the monthly portfolio, high portfolio turnover and high net current asset holdings appear to indicate hedged positions (short) to reduce the fund’s downside.
But such hedging strategy may also result in capping returns if markets see a sudden rally.
On a one-year rolling return basis, Top 100 has outperformed its benchmark 82 per cent of the time in the last four years. The underperformance came during periods of a sharp rally where it was a bit slow to catch up with the index.
But from the Decmeber-2011 lows to date, the fund bucked the trend and gave a 21.4 per cent return from December lows as against Nifty’s return of 19.1 per cent.
In December, the fund took the opportunity to invest most of its funds in equities with its current-asset holdings declining to a multi-year low.
Given the buying opportunity in cash segment, the company may have taken lower short positions in the derivative market. High holding in pharma stocks, which witnessed a sound rally this year (so far), also helped.
Portfolio
As of July 2012, the average market capitalisation of stocks in the fund was Rs 82,000 crore. The total stock holdings was limited to 26 stocks.
As of July, the fund also had long position in futures of Nifty Index and the stock of SBI.
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