Mutual Funds

ICICI Prudential Value Discovery: A marathoner, not a sprinter

Vivek Ananth | Updated on November 09, 2019 Published on November 09, 2019

The fund has returned nearly 14% over 7- and 10-year periods; short term returns are dismal

Value investing is all about going against the grain while deploying money in the stock market. It is about finding value in stocks which others have dismissed, and in businesses which are undervalued but are a good long-term bet. ICICI Prudential Value Discovery Fund is one fund that tries to execute this strategy. The scheme has underperformed its peers and its benchmark over the past three-year time-frame. The fund manager, however, has shown that he has an instinct to pick good stocks.

The fund is agnostic to market capitalisation and this approach allows it to hunt for value in stocks that are out of favour. Prior to 2017, ICICI Prudential Value Discovery Fund predominantly invested in mid- and small-cap stocks.

Around the same time, there was froth in the mid- and small-cap space and the scheme slowly exited its positions in many mid- and small-cap stocks. Its portfolio now consists largely of large-cap stocks such as Mahindra & Mahindra, Vedanta, Hindalco Industries and many non-financial PSU stocks such as NHPC, NTPC, Power Grid and Bharat Electronics.

 

Fund Performance

Ever since the fund became large-cap heavy, it has been underperforming its peers. In the last three years, it has not beaten its benchmark (BSE 500 TRI). It has delivered 5.1 per cent CAGR against its benchmark’s 11.6 per cent. Over the past year, the fund’s returns have drifted in the negative territory while its peers such as JM Value, Nippon India Value, UTI Value Opportunities and Tata Equity PE have given returns of 10.6 per cent, 9.7 per cent, 8.4 per cent and 9.5 per cent, respectively.

The scheme has outperformed its peers in the seven and 10-year periods with a CAGR of nearly 14.8 per cent and 14.7 per cent, respectively, against the category average of 13.5 and 11.5 per cent over the same period. The fund has a four-star rating according to BusinessLine Portfolio’s Star Track Mutual Fund Ratings.

The fund’s manager, Mrinal Singh, has avoided non-banking finance companies (except LIC Housing Finance) because of the larger malaise plaguing the sector over the past 18 months or so. However, one of his previous NBFC bets — Bajaj Finserv — which he exited in 2017, has outperformed significantly and become a large-cap stock.

Now, he sees value in pharmaceuticals, utilities and non-financial PSU stocks along with some IT companies including TCS, Infosys and HCL Technologies, as can be seen from the fund’s monthly portfolio disclosures.

Should you invest?

The returns in the last three years are nothing to write home about. The fund’s underperformance vis-à-vis its peers and the benchmark index is a direct consequence of its preference for large-cap stocks, of late, with nearly 68 per cent of its corpus being deployed in large-cap stocks as of September, according to data from NAV India.

The fund manager has displayed his ability to deliver good returns with his value picks. He exited mid- and small-cap stocks before the carnage that saw investors lose heavily from 2018 onwards.

The fund manager has also deployed over one-third of its corpus (of more than ₹15,000 crore) in high dividend yield stocks, which include PSUs.

Value investing needs to be given time to bear fruit and this fund could give investors decent return if its bets pay off.

Published on November 09, 2019
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