Mutual Funds

Fund Call: ICICI Prudential US Bluechip Equity

Anand Kalyanaraman | Updated on October 13, 2019 Published on October 13, 2019

The fund adopts a mix of top-down and bottom-up approaches for stock selection

There are many reasons for Indian investors to consider foreign stocks. One, given that global markets do not often move lock-step, geographical diversification can help shield the portfolio from volatility in a single, local market.

Next, some niche opportunities such as cutting-edge technology stocks are available only in global markets. Also, the general downward trend of the rupee vis-à-vis major global currencies such as the US dollar, aids its returns on global stocks.

There are a few good India-based funds that invest in global stocks. Among the best performers in the category isICICI Prudential US Bluechip Equity Fund. It is an open-ended equity fund that invests primarily in large-cap US stocks. The fund’s annualized return (in rupee terms) since its launch in July 2012 is about 15.5 per cent.

As of September 30, 2019, the fund’s three and five year annualised return is about 15 per cent and 11 per cent respectively, compared with about 15.6 per cent and 14 per cent returns of its benchmark, S&P 500. Over the past year, the fund with 4.4 per cent returns has done better than the benchmark (1.6 per cent returns). The fund’s positive return over the past year is in contrast to the negative returns posted by many domestic funds, highlighting global diversification benefits.

Portfolio

In line with its large-cap bluechip focus, the fund invests in stocks that have a minimum market capitalisation of $4 billion. It is sector-agnostic and adopts a combination of top-down and bottom-up approaches for stock selection. About 95 per cent of the corpus is currently in stocks, with the rest in cash and equivalents. Except during a few occasions, the fund’s cash position in the past few years has generally not exceeded 5 per cent.

With about 40 stocks, the portfolio is well diversified with a presence across many sectors including consumer goods, software, healthcare, banks and finance, retail, aerospace and defence.

The largest exposure, as of September end, is to healthcare and pharma (about 20 per cent of the corpus) followed by consumer (about 19 per cent) and software (13.5 per cent) sectors. Well-known stocks include Amazon, Alphabet (Google), Microsoft, Facebook, Intel, Kellogg, Nike, Berkshire Hathaway, Gilead Sciences, Amgen, Domino’s Pizza, and Caterpillar. Many of these have done quite well over the past few years.

Investors will be better off adopting the systematic investment plan (SIP) route to investing in the fund rather than going for lump sum investments. While the US stock market has done quite well over the past few years, it could also stumble now, given the ongoing trade war and global growth challenges. The SIP route can help investors hedge against downside risks and take advantage of possible downturns by investing at lower price points.

For tax purposes, ICICI Pru US Bluechip Equity will be treated as a non-equity fund. So, short-term gains (on sale of units held for up to 36 months) will be taxed at the investor’s slab rate, while long-term gains will be taxed at 20 per cent after indexation.

(As a category, BusinessLine has not rated international funds yet)

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Published on October 13, 2019
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