Fund Review- ICICI Prudential Focused Bluechip Equity RetailCategory: Large CapManager’s Benchmark: S&P CNX NiftyInception...
Fund House Pitch                                                      My Analysis“Diversification is needed to reduce risk...
He also has a strong dislike for highly leveraged firms, which        IT sector’s new bell weather and has rather increase...
Period       Fund       Nifty     Sensex    BSE 100   MSCI India 1M             -3.01       -4.3     -4.15     -4.83      ...
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ICICI Prudential Focused Bluechip Equity Fund


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ICICI Prudential Focused Bluechip Equity Fund

  1. 1. Fund Review- ICICI Prudential Focused Bluechip Equity RetailCategory: Large CapManager’s Benchmark: S&P CNX NiftyInception Date: May 23, 2008Fund Manager: Prashant KothariTotal Net Assets: Rs 3532.2 crore as on Dec 31, 2011NAV: Rs 14.52 as on Dec 31, 2011
  2. 2. Fund House Pitch My Analysis“Diversification is needed to reduce risk, but too much This fund was launched in May 2008. As we could recall that yeardiversification can result in diminishing returns. Therefore, it wasn’t just the year of the bear but also the year that witnessedmakes sense to strike a balance between minimum risk and one of the most terrible bloodbaths for Global equities in ourmaximum returns, which is what a focused fund does. By investing recent memory. Most market players were shying away fromin the largest companies because of an outlook that they will be equities and taking refuge in cash, gold and debt instruments. Butthe most stable through any situation, it strives to grow your Prashant Kothari held a different view in those times, that hewealth in the long run.” capitalized on irrational market behaviour and took bets with some large caps whose prices have fallen down during the“ICICI Prudential Focused Bluechip Equity Fund, an open-ended downturn but had promising business potential and healthy cashequity scheme, aims to maximize long-term total returns, from a flow position. When the market began to shown signs of recovery,focused and optimally diversified portfolio that is invested inequity and equity related securities of about 20 companies his portfolio was well poised to lead the charts. Since then, therebelonging to the large cap domain. This strategy has the potential has been no looking generate positive returns from being overweight on certainhigh conviction stock picks.” Since 2009 not only it has beaten the benchmark in every single calendar year but also marched ahead in the peer category. InInvestment Philosophy 2011, 2010 & 2009 it outperformed S&P CNX Nifty Index by 8.236%, 9.12% & 15.43% respectively.This fund invests in about 20 equity and equity related securities,and seeks to generate long term capital appreciation. Theportfolio is mandated to select stocks from among the Top 200stocks in terms of market capitalization on the NSE. This fundadopts a bottom-up approach to Stock Selection and the fundmanager has the flexibility to choose between stocks across allthemes, sectors and investment styles. 2011 Period Investment Approach Since inception of this fund, he has invested in only 36 stocks. More often than not he takes long position with his holdings. Due to this approach, the Portfolio turnover ratio of this fund i.e. 0.38 times is quite low compared to its peers. However if an existing holding looks overpriced beyond a level, he doesn’t hesitate in booking profits. Prashant follows a bottom-up and an active approach, he looks for Industry heavy weights but doesn’t have any sector bias as such. As quoted earlier also he looks for companies whose business model seems promising, exhibit high corporate governance levels and the management looks trust worthy. He uses a combination of DCF models and relative valuation factors such as P/BV, EV/EBITDA, P/E, and PEG to evaluate a company’s fair value. To cite instances, in Auto space, he favoured Bajaj over Hero Moto or Tata Motors, given Bajaj’s cheaper valuation & better profit margins. For similar reasons his2011 Period preference for PNB & BOB over SBI amongst Public sector banks and Infosys over TCS in the Technology space is well justified.
  3. 3. He also has a strong dislike for highly leveraged firms, which IT sector’s new bell weather and has rather increased exposure toexplains why he has always avoided Real Estate & Infrastructure Infosys despite its subdued performance on the charts recently. Inso far. On few occasions he has also taken contrarian bets in his fact, as end of 2011 Infy held the biggest weight in the portfolio. It has also added another Pharma names to the holdings list bysecurities selection. Prashant keeps almost 5-10% of assets in taking fresh exposure to Cadila in October month. It’sEquity or Index Futures to maintain liquidity and at the same time undoubtedly amongst the big boys of the Industry, has had strongmaintaining equity exposure for the fund. top-line and bottom line growth last year, possess a well diversified product portfolio besides a few promising drugs (Generics) in the pipe line. The fund also completely sold offHoldings Analysis Oracle Financial Services and Mahindra & Mahindra in October & December month respectively.As mentioned in AMC’s pitch, they do not believe in too muchdiversification. The fund holds just 20 stocks comprising mostlyblue chips. As a truly active fund, the portfolio’s sector weights Security wise Portfolio breakupremotely align with that of benchmark S&P CNX Nifty. See currentsector holdings below: Weight (% 0f 1 Year Company Sector Assets) Return Infosys Ltd Technology 9.44 -19.61 RIL Energy 8.37 -34.55 Wipro Technology 6.18 -18.84 Bajaj Auto Automobile 5.96 3.27 Cipla Healthcare 5.95 -13.49 Bharti Airtel Communication 5.08 -4.26 ITC Ltd FMCG 4.98 15.26 Bank of Baroda Financial 4.85 -25.8 Hindustan Zinc Metals 4.6 -12.54 Axis Bank Financial 4.34 -40.15 ICICI Bank Financial 4.12 -40.21 Power Grid Corp Energy 3.85 1.83 Tata Power Energy 3.74 -36.11As end of Dec 31, 2011 Cairn India Energy 3.38 -5.56 ONGC Energy 3.18 -20.32As evident from the above pie chart, currently almost 64% of Grasimassets are allocated amongst Energy, Financial, Technology & Industries Diversified 3.18 6.23Healthcare sectors. He does not hold any exposure to Real Estate Cadila Healthcare 3.06 -8.91and Civil Aviation sector as those firms do not qualify his qualityfilters like high corporate governance level, superior management PNB Financial 2.05 -36.1structure and low leverage. As of Dec 2011, Equity & Index futures HDFC Bank Financial 1.44 -9.04accounted for 5.19% of the portfolio & Cash levels stood at 5.64%. BHEL Engineering 1.42 -48.61Prashant’s high-risk specialized/concentrated strategy has paid off As end of Dec 31, 2011investors so far. But it has also missed a couple of Sector rallieslike Metal’s bull run in 2009. BSE Metal index delivered 233.68 %in 2009. Likewise the recovery of Tata Motors since 2008 has been Performance Analysisphenomenal, it has given 70.26% return annually over last four As its name suggests, the scheme focuses on some of the finestyears period. Unfortunately the Fund Manager failed to capitalize Industry heavy weights and thus has reaped the benefits ofon that true fairy tale instance. Inclusion of Idea in stupendous recovery seen in the large-cap space after the marketCommunications & HUL in the FMCG category would have meltdown in 2008. Having acquired most of its equity investmentsboosted Portfolio’s returns significantly in 2011 period as both at discounted rates in the second half of 2008, ICICI Prudentialyielded 18.33% and 30.20% respectively for the calendar year. His Focused Bluechip Equity delivered 91% returns in 2009 as againstconviction for BHEL & ICICI Bank has not gone well for 2011 76% returns by its benchmark S&P CNX Nifty. It has consistentlycalendar as they were down by 48.61% & 40.21% respectively. beaten the benchmark in the last 3 years. Though being relativelyHowever both these stocks will surely cheer up long term new, it has eclipsed the performance of some of Industry’s bestinvestors as ICICI bank is expected to post strong Q3 numbers on performing old names like HDFC Top 200, Franklin India Bluechip,the back of business recovery, improvement in NIMs & low DSP BR Top 100 etc. No wonder why it was awarded with CRISILexposure to Telecom & Aviation firms whereas BHEL enjoys near number one ranking in Open End Large cap Equity schemesmonopoly position in Capital Goods/Engineering space, it has category. It also commands 5 star ranking from both Morningstarstrong order book and also hold high cash levels. & Value Research. It’s AUM has grown from Rs 1658.17 crore in the beginning of 2011 to a massive size of Rs 3532.16 crore as endA tour through Portfolio holdings throughout 2011 suggests that of 2011, thereby clocking a growth of 113% in just one year. AllFund Manager has a quality bias, he prefers value (margins) over these factors reflect an impressive track record for the fund.volumes. In September, the Fund made an exit from TCS which is
  4. 4. Period Fund Nifty Sensex BSE 100 MSCI India 1M -3.01 -4.3 -4.15 -4.83 -4.38 6M -12.95 -18.12 -17.99 -19.13 -18.9 1Y -16.41 -24.62 -24.64 -25.73 -26.33 2 Y (Ann) 3.06 -5.71 -5.93 -7.32 -8.06 3 Y (Ann) 26.63 16.04 17.01 16.7 17.42Period- Jan 1, 2009 till Dec 31, 2011Top 5 Performing Constituents Company Sector Contribution ITC Ltd FMCG 0.76 Grasim Industries Diversified 0.20 Bajaj Auto Automobile 0.19 Since inception till Dec 31, 2011. Base taken as 10. Power Grid Corp Energy 0.07 HDFC Bank Financial -0.13 Other Quantitative IndicatorsBottom 5 Performing Constituents Average P/E: 17.79 Average P/BV: 3.38 Company Sector Contribution Average Dividend Yield: 1.69 RIL Energy -2.89 Average Portfolio Turnover Ratio: 0.38 times Infosys Ltd Technology -1.85 Std Dev (Annualised): 22.82% Axis Bank Financial -1.74 Sharpe Ratio: 0.78 ICICI Bank Financial -1.66 Portfolio Beta: 0.85 Tata Power Energy -1.35 R Squared: 0.97As end of Dec 31, 2011 Annual Management Fee: 1.25% Total Expense ratio: 2.10%Relative Performance  Portfolio turnover has been computed as the ratio of the lower value of average purchase and average sales, to the average Out/Under Date Fund Benchmark Performance net assets in the past one year. Jan-11 -8.52 -10.25 1.73  Risk-free rate based on the last 91-day T-Bill cut-off of Feb-11 -2.96 -3.14 0.18 8.4782%. Mar-11 9.73 9.38 0.34 Apr-11 -0.65 -1.44 0.79 Bottom-line for investors May-11 -2.86 -3.29 0.44 Jun-11 2.14 1.57 0.57 The fund’s opportunistic investment in fundamentally sound Jul-11 -0.84 -2.93 2.09 companies from attractive sectors has paid off investors really Aug-11 -8.52 -8.77 0.25 well. Its investment rationale is tilted towards large cap-growth Sep-11 -0.07 -1.15 1.09 flavour and committed to long term capital appreciation from Oct-11 6.55 7.76 -1.21 investments in handpicked blue chip stocks across various sectors. Nov-11 -7.08 -9.28 2.21 The fund has outperformed the broader indices by fairly good Dec-11 -3.01 -4.30 1.29 margins historically. Do consider this ‘aggressive large cap open- 1 Year Period -16.41 -24.62 8.21 ended fund’ while evaluating various mutual funds for your EquityIn 2011, except for October month, the fund has always given fund portfolio and SIP your way to achieve long term goals.positive relative return over its benchmark. Those were extremely Always remember that the fund has highly concentrated portfolio,volatile period for the broader markets. Even if we go beyond last so new investors with high-risk quotient can consider investing inyear, the fund has beaten both benchmark and category average the scheme with a long term investment horizon.across various market cycles in last three years.Disclaimer- Due diligence has been exercised in checking the authenticity of all figures mentioned in this report. But that does notguarantee its accuracy or completeness. The recipient of this material should rely on his/her own judgment and take prudent decisionbefore acting on the above piece of information. 06-Feb-2012, © Saurabh 2011 (Saurabh Kumar||+91-8374109195)