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Chart talk Chart talk Document Transcript

  • Chart Talk: ICICI Prudential Focused Bluechip Fund November 11, 2011Fundsupermart.com launches Chart Talk, a series of articles in which we analyze theperformance of our Recommended Funds as compared to the benchmark, other funds in theircategory as well as the fund reaction to market movements. Today, we talk about ICICIPrudential Focused Bluechip Fund Author : Niketa Agarwal
  • KEY POINTS The fund was launched on 23 May 2008. The fund has constantly outperformed its benchmark C&P CNX Nifty from 1 October 2008 till 30 June 2011 that is 11 times out of 12 on quarter (q-o-q) basis. The fund has a greater average outperformance of 5.39% in bear market conditions than the average outperformance of 1.04% in th conditions. The fund outperforms all 40 large cap funds belonging to the same period over 1 year and 3 years. The fund has an exit load of 1% if redeemed or switched-out within one year of allotment and no exit load after that. The fund has an expense ratio of 1.83% as on 31 October 2011. (Source: ACE ) It is a diversified large cap fund and is moderately risky therefore, occupies a risk rating of 6 on our platform.ICICI Prudential Focused Bluechip Fund is an open- ended large cap fund which aims to generate long-term capital appreciation by focusing on inveand equity related securities of about 20 top blue chip companies in India. The fund has an average allocation of 88.58% in equities from September2011. (Source: Ace).INVESTMENT STRATEGY OF THE FUNDFSM Research found that the fund has used derivatives every month since its inception except for December 2009. In 2008, derivatives accounaverage, 16% of the portfolios investment. The fund has an average allocation of 7.08% in derivatives from September 2010 till June 2011. Theaverage allocation of 4.34% in cash for the same time period.Exposure to derivatives is considered a risky element in a fund’s portfolio; however, in the case of this fund, its controlled exposure to core econodesigned to balance this risk. The funds strategy is to invest in about 20 large cap stocks from key sectors like Banking, Information Technology,Refineries and Metals. These five sectors account for over 50% of the portfolio investments. Our research shows that Banking is the single largest sfund invests in. The fund manager holds an extremely positive view on the banking sector and has maintained a high average allocation of 22.72% ifrom September 2010 till June 2011. Other than Banking, Information Technology, Automobiles, Refineries and Metals are the most important sectorsFUND VERSUS BENCHMARK: SINCE INCEPTIONThe fund’s performance benchmark is S&P CNX Nifty. We compared the daily NAV of the fund with the benchmark from 1 July 2008 to 30 June 20map the performance of the fund against its benchmark. The daily NAV of the fund and the benchmark has been rebased to 100.CHART 1: ICICI PRUDENTIAL FOCUSED BLUECHIP FUND VERSUS S&P CNX NIFTY (Q-O-Q BASIS)
  • Source: iFAST CompilationsChart 1 shows that the fund has consistently outperformed its benchmark since 01 October 2008 except the first quarter from July-September 2008. Hlook at the 1-year period from 01 July 2008 to 01 July 2009 the fund outperformed the benchmark with a CAGR of 22.75% against the CAGR of 1benchmark for the same time period. [The fund outperforms when it generates higher returns than its benchmark; the fund underperforms when it gereturns than its benchmark.]The fund’s average performance on a q-o-q basis from 1 July 2008 till 30 June 2011:Average Outperformance: 2.09% (q-o-qAverage Underperformance: -1.88% (q-o-q basis)The average underperformance of the fund is only the underperformance of the fund in its first quarter from July-September 2008 by -1.88% telling ushas underperformed its benchmark only once since its inception.The fund manager further believes in investing in stable sectors like banking and automobiles which form the backbone of the economy. Also, he dohave exposure to too many varied sectors as a result of which the fund has a tight portfolio having an exposure to few key sectors.Chart 2 shows the average sector allocation of the 5 important sectors of the fund from September 2010 till June 2011.CHART 2: AVERAGE SECTOR ALLOCATION OF 5 KEY SECTORS OF THE FUND
  • FROM SEPTEMBER 2010 TILL JUNE 2011Source: iFAST CompilationsFUND VERSUS BENCHMARK: YEAR – ON – YEAR BASISChart 3 shows the CAGR returns at 1 year, 2 years and 3 years of ICICI Prudential Focused Bluechip Fund as compared to its benchmark returnsyear (y-o-y) basis from the calendar year 2009 to 2011.CHART 3: ICICI PRUDENTIAL FOCUSED BLUECHIP FUND VERSUS S & P CNX NIFTY (Y-O-Y BASIS)SOURCE: IFAST COMPILATIONSAs it can be seen from the chart, the fund displays the same movement as its benchmark, but outperforms it in all periods. The fund has a beta of 0.84that the fund exhibits lower volatility than the market. (Source: ICICI Prudential Focused Bluechip Fund Factsheet as on 31 October, 2011). (Betavolatility of a fund with respect to the market. A beta > 1 means the fund is more volatile than the market and vice versa; a beta <1 indicates the fundthan the market.)
  • FUND VERSUS CATEGORY PERFORMANCEThe fund belongs to the large cap category. We compared the fund performance with 40 funds belonging to the large cap category. Chart 4 shows theof the fund with respect to the performance of the other funds in the same category over 1year, 3 years and since the inception of ICICI PrudeBluechip Fund.CHART 4: ICICI PRUDENTIAL FOCUSED BLUECHIP FUND VERSUS CATEGORY PERFORMANCESOURCE: IFAST COMPILATIONSAs it can be seen from the chart, the fund displays the same movement as its benchmark, but outperforms it in all periods. The fund has a beta of 0.84that the fund exhibits lower volatility than the market. (Source: ICICI Prudential Focused Bluechip Fund Factsheet as on 31 October, 2011). (Betavolatility of a fund with respect to the market. A beta > 1 means the fund is more volatile than the market and vice versa; a beta <1 indicates the fundthan the market.)FUND PERFORMANCE IN UP MARKET AND DOWN MARKETThe fund performance during bear and bull markets have been calculated in order to see how the fund has fared across all market conditions from 1June 2011 on a q-o-q basis. The underlying assumptions for the classification of ‘up’ market and ‘down’ market are: Up- The benchmark, S & P CNX Nifty has moved up more than 5.0% (q-o-q basis) Down- The benchmark, S & P CNX Nifty has fallen down more than -5.0% (q-o-q basis) Side- The Benchmark, S & P CNX Nifty moves in the range of 5.0% to -5.0% (q-o-q basis)Table 1: Average Performance of the Fund Across Market Conditions (q-o-q basis)
  • Market Conditions Average Performance Positive QuartersUp 1.04% 3 out of 3Side 1.57% 7 out of 8Down 5.39% 1 out f 1The table above that the fund delivered an average returns of 1.04% in the up market on a q-o-q basis in 3 quarters from July 2008 till June 20delivered returns of 5.39% in the down market on a q-o-q basis. There has been only one quarter in which the market has been down which is Octob2008 from July 2008 till June 2011 in which the fund has outperformed the benchmark.CONCLUSIONThe ICICI Prudential Focused Bluechip fund is a relatively new fund but has displayed good performance till now. The fund can be considered as arisky investment as a result of its exposure in derivatives. However, its exposure to few sectors which prove to be concrete like banking and automothe risk which the fund carries with having a higher exposure to derivatives. Also, the fund’s low beta tells us that the fund is less volatile thanTherefore, the fund can be considered as an investment option by investors with a time horizon of medium to long term looking for investment in a larg