ICICI Pru Discovery: Invest

Looking for a fund that invests across mid and small-cap stocks and enjoys a value-bias? ICICI Prudential Discovery fund fits your requirement well.

The fund follows a ‘value investing' strategy and therefore comes tagged with lower risks than its mid-cap focused peer funds.

This holds considerable investment merit in the present market. An impressive returns scorecard and promising portfolio of stocks also add up in its favour.

But investors may be better off adopting a long-term investment horizon as the benefits of the fund's value-investing strategy and mid-cap bias can best be reaped over time.

Suitability

The fund makes a good investment option for investors with some appetite for risk. While the fund's value-based investment proposition makes it less risky than some of its peer midcap-focussed funds, it still enjoys a higher risk profile than the funds that invest in large-cap stocks only.

Besides, investing in the small and mid-cap universe of stocks is ridden with high risks.

Performance

Over a three- and five-year period, ICICI Pru Discovery has delivered about 35 per cent and 13 per cent, respectively, way higher than the 25 per cent and 7 per cent returns managed by its benchmark CNX Midcap in the same period.

During these periods, it scored over many of its peers such as Reliance Regular Savings, Sundaram SMILE and DSP BR Small and Midcap too.

Its one-year performance too has been impressive. Though it managed to put in only a flat performance, it outperformed its category average as well as its benchmark by a comfortable margin over the year, finding place in the top quartile of funds. The fund's also outpaced similar theme-based funds such as Tata Equity PE over one-, three- and five-year periods.

Its value-bias has helped the fund put up a fairly reasonable record in containing downsides.

For instance, between January 2008 highs and March 2009 lows, the Discovery Fund managed to contain the fall in its Net Asset Value (NAV) to approximately 49 per cent, marginally less than the CNX Nifty and way better than CNX Midcap (negative 57 per cent).

That it beat even some of the diversified funds with relatively a large-cap bias during the period highlights the efficacy of its value-investing approach.

Notably, the value-approach has helped it during volatile markets also; its performance during November 10 highs to 2011 period is a case in point.

The fund's performance during market periods of protracted market rallies, however, isn't as impressive.

It had severely underperformed in the bull markets of 2006 and 2007. But to its credit, the fund has made some improvement in this regard.

In 2009, for instance, from March lows to the end of the year, the fund's return of 175 per cent not only was at a comfortable premium to CNX Midcap's 153 per cent, it also was among the top ten in its category.

Similarly, its year-to-date return at 25 per cent is also among the top ten in its category.

Portfolio

ICICI Pru Discovery has also occasionally dabbled in derivatives and made periodic cash calls while rebalancing its equity exposure.

The fund's portfolio choices, however, have been largely offbeat, what with contrarian and dividend yield stocks (and sectors) with a focus on relatively low Price-Earnings (PE) stocks making up its portfolio.

For instance, stocks such as Amara Raja Batteries, Rain Commodities, and Standard Chartered PLC find a place in its top ten stocks' list.

In its latest available portfolio (March-12), large-caps (stocks with more than Rs 7,500 crore market capitalisation) make up more than 32 per cent of its overall portfolio, while mid- and small-caps make up 15 per cent and 43 per cent, respectively.

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