Fund call. ICICI Prudential Value Discovery Fund: Swift moves keep this mid-cap on its feet

Not too risky, not too safe — multi-cap funds generally have this goldilocks quality. This is thanks to their flexibility to juggle stocks across market-caps, not being constrained by size mandates. If you are ready for this risk-flexibility trade-off, multi-cap funds can suit you well.

ICICI Prudential Value Discovery Fund is among the best in the category. It has been shuffling its portfolio adeptly for quite some time now.

For instance, from nearly 45 per cent in the go-go days of June 2014, mid- and small-cap stocks account for just about 20 per cent of the fund’s portfolio in the current iffy market. Earlier, the fund was often clubbed in the mid-cap category, given its portfolio’s high exposure to stocks outside the large-cap space — up to 70 per cent or more in bull markets. But over the past few years, exposure to mid- and small-caps has been restricted to less than 50 per cent of the portfolio. To reflect its multi-cap character, the fund changed its benchmark last November from the CNX Midcap Index to the S&P BSE 500 Index.

An earlier change in name in April 2014 from ICICI Prudential Discovery to ICICI Prudential Value Discovery makes clear the fund’s investing philosophy — seeking quality stocks available relatively cheap.

And its long-term track record shows the approach is delivering the goods by containing downsides well and participating strongly in upsides. In line with the market, the fund too has fallen last year but its loss is less than that of the benchmark. The fund’s winning consistency is reflected in its one-year daily rolling return that has been higher than the benchmark’s more than nine times out of 10 over the past five years.

It also beats most peers over long time periods and figures in the top quartile of multi-cap funds.

Still, investors in the fund must have stomach for risk. The fund does not shy away from betting on small-caps; more than 5 per cent of the portfolio is currently in such stocks (market-cap of less than ₹5,000 crore). Also, it holds a couple of unlisted companies.

And while the portfolio is diffused with about 60 stocks, it includes two or three concentrated bets that each account for 6-9 per cent. The fund also takes contrarian bets.

For instance, unlike many peers, over the past year, ICICI Prudential Value Discovery has upped stake in public sector banks.

Mitigating these are a few factors. One, the concentrated bets are in bluechips such as L&T and ICICI Bank. Next, generally 8-10 per cent of the portfolio is deployed in cash and debt instruments in volatile times. Finally, the proof of the pudding is in the eating — the fund’s portfolio choices in the past have paid off more often than not. Over longer tenures, small stocks that the fund bet on, such as P I Industries and Natco Pharma, have turned multi-baggers. Large-caps in the portfolio such as Bharat Forge and Hero MotoCorp have also done well. Even in the current portfolio, the biggest bet among PSU banks is on Bank of Baroda, which seems better placed than most of the pack. Private sector banks form the largest chunk (about 13 per cent) of its portfolio.

Over the years, the fund’s corpus has burgeoned to about ₹10,000 crore. While this could hinder acquiring big stakes in mid- and small-cap stocks at attractive valuations, it helps the fund keep the expense ratio low compared with most peers.

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