ICICI Prudential Focused Bluechip Equity Fund

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ICICI Prudential Focused Bluechip Equity Fund

ICICI Prudential Focused Blue-chip Equity is a large-cap growth fund. The fund was started in May 2008. Its corpus size currently stands at Rs 4,230.72 crore, making it the sixth-largest fund within the diversified-equity category.

While the fund's mandate allows it to invest in the top 200 companies by market capitalisation, the greater part of the portfolio is invested in the top 100 stocks.

The fund remains more or less fully invested: at any given time 92-97 per cent of the portfolio is invested in equities. It doesn't take active cash calls. While such a fund may tumble more in a downturn, the advantage of this approach is that it is unlikely to miss out on an upturn in the market.

The fund's mandate allows it to deviate only +/- 5 per cent from the weights of the various sectors in its benchmark, the S&P CNX Nifty. Says Manish Gunwani, the fund manager: "The idea behind this stipulation is that you generate alpha through bottom-up stock picking rather than by taking macro bets."

The fund mostly invests in growth stocks. Says Gunwani: "With a buy-and-hold philosophy, you can let compounding work in your favour by buying into growth stocks. At the same time, if we find great value stocks, we will buy them."

Fund performance

			YTD		6-month		1-year		3-year		Since inception
ICICI Pru Focused BlueChip Eq Fund(G)		1.96		16.15		17.98		12.36		14.35
S&P CNX Nifty		2.20		15.41		16.07		7.30		--

All figures in per cent

Year-to-date the fund is lagging behind its benchmark. However, it has beaten the latter over all the other time horizons: six-month, one-year, and three-year. Since inception it has given its investors a compounded annual return of 14.35 per cent.

	Scheme		2012		2011		2010		2009
ICICI Pru Focused BlueChip Eq Fund(G)*		27.32		-16.46		27.07		87.52
S&P CNX Nifty*		27.35		-24.90		17.95		71.46
Out/under performance**		-0.03		8.45		9.12		16.06

*Figures in %; figures in %age pts.

In 2012 the fund fell behind its benchmark by a small margin of three basis points. In the past three full calendar years for which the fund has existed, it has beaten its benchmark by wide margins every time.

Portfolio characteristics

Number of equity holdings. The fund runs a concentrated portfolio. Currently it has 29 stocks in its portfolio, which is lower than the median of 43 for the diversified-equity category.

Since its inception, the fund has always run a tight portfolio, with the equity count in its portfolio averaging 21.5. In recent times, the equity count has gone up: in 2012 it averaged 28.69.

Sector concentration.

	Scheme		Top 3		Top 5		Top 10
ICICI Pru Focused BlueChip Eq Fund(G)		37.65		48.58		71.07
Median-diversified equity		33.81		46.54		67.37

Figures in %

The fund's exposure to the top three, five and 10 sectors in its portfolio exceeds the median for the diversified-equity category.

Company concentration.

	Scheme		Top 3		Top 5		Top 10
ICICI Pru Focused BlueChip Eq Fund(G)		21.08		31.75		53.03
Median-diversified equity		17.85		26.99		44.66

The fund's exposure to the top three, five and 10 sectors in its portfolio exceeds the median for the diversified-equity category.

All the three parameters—number of equity holdings, sector concentration and company concentration—point to the fact that ICICI Pru Focused Blue-chip runs a concentrated portfolio. A more concentrated fund does imply higher risk.

Turnover ratio. The fund's latest turnover ratio is 93 per cent. This is higher than the median of 71 per cent for the diversified-equity category. In the whole of 2012, however, its turnover ratio averaged only 68.92 per cent. Thus, the fund manager does not churn the portfolio too much.

Expense ratio. The fund'scurrent expense ratio is 1.95 per cent. This is about 22 basis points higher than the 1.83 per cent that the fund charged when we had last reviewed it in July 2012. The expense ratio is still much lower than the category average of 2.48 per cent for the diversified-equity category.

Risk measures.

			SD		Beta (Slope)
ICICI Pru Focused BlueChip Eq Fund(G)		0.9904		0.8719
Median-diversified equity		0.9601		0.7987

An examination of measures such as standard deviation and beta (calculated over a three-year period) shows that the fund carries a higher level of risk than the median for the diversified-equity category.

Risk-adjusted return.

			Treynor		Sharpe
ICICI Pru Focused BlueChip Eq Fund(G)		0.0380		0.0334
Median-diversified equity		0.0220		0.0184

An examination of measures such as Treynor ratio and Sharpe ratio (also calculated over a three-year period) shows that the fund offers much higher risk-adjusted returns than the median for the diversified-equity category.

Cash allocation. Currently the fund has an allocation of 4.57 per cent to cash. In 2012 its allocation to cash averaged 5.85 per cent. Since November 2008 the fund's allocation to cash has averaged 5.38 per cent. Thus the fund does not take very large cash calls.

Portfolio strategy

2012.

In 2012 the Sensex was up 25.70 per cent, the BSE Midcap Index was up 38.52 per cent, and the BSE Small-cap Index was up 32.97 per cent.

The fund was up 27.32 per cent, marginally lagging behind its benchmark, which was up 27.35 per cent.

In 2012 the fund had an average large-cap allocation of 92.91 per cent. Its allocation to the 'others' category averaged 7.09 per cent. In 2012 the fund's allocation to cash has averaged 5.85 per cent.

	Benchmark		YTD (%)
BSE BANKEX		56.72
BSE Realty		53.44
BSE FMCG		46.61
BSE Consumer Durables		46.08
BSE IPO		44.44
BSE AUTO		40.31
BSE Health Care		38.53
BSE Capital Goods		34.71
BSE METAL		19.13
BSE PSU		15.24
BSE OIL & GAS		13.14
BSE Power		10.86
BSE TECk		1.41
BSE IT		-1.18

In 2012 the various sector indexes in descending order of performance were as given in the table above.

	Sector		January 2012 (%)		December 2012 (%)		Raised/lowered allocation (%age pts.)
Bank – Private		15.90		21.58		5.67
Diversified		2.77		4.56		1.80
Cigarettes/Tobacco		5.10		5.78		0.68
Telecommunication - Service Provider		4.81		5.24		0.43
Metal - Non Ferrous		4.71		3.79		-0.93
Automobile Two & Three Wheelers		5.69		4.24		-1.45
Refineries		7.14		5.49		-1.64
Bank – Public		7.43		5.44		-1.99
Pharmaceuticals & Drugs		8.51		4.66		-3.85
IT - Software		15.14		10.30		-4.84

In 2012 the fund raised its allocation to sectors like private banks, diversified, cigarettes and tobacco, and telecom service providers. Among its top 10 sector holdings, the fund lowered its allocation to sectors like IT software, pharma, public banks and so on (see table above).

	Sector		Fund (%)		S&P CNX Nifty (%)		Over/under weight vis-à-vis benchmark (%age pts.)
Bank – Private		21.58		16.68		4.90
Metal - Non Ferrous		3.79				3.79
Diversified		4.56		1		3.56
Telecommunication - Service Provider		5.24		2.07		3.17
Automobile Two & Three Wheelers		4.24		2.36		1.88
Bank - Public		5.44		4.67		0.77
Pharmaceuticals & Drugs		4.66		4.93		-0.27
IT - Software		10.30		12.69		-2.39
Refineries		5.49		8.29		-2.80
Cigarettes/Tobacco		5.78		8.87		-3.09

In 2012 the fund was overweight vis-à-vis its benchmark in private banks, diversified, telecom, auto (two and three-wheeler) and public banks. Among its top 10 sector holdings the fund was underweight vis-à-vis its benchmark on cigarettes and tobacco, refineries, IT software and pharma.

	Company		January 2012 (%)		December 2012 (%)		Raised/lowered allocation (%age pts.)
State Bank Of India		0.11		5.44		5.32
Kotak Mahindra Bank Ltd.		0.01		4.82		4.81
HDFC Bank Ltd.		5.74		8.72		2.98
ICICI Bank Ltd.		4.91		6.58		1.67
ITC Ltd.		5.10		5.78		0.68
Bharti Airtel Ltd.		4.81		5.24		0.43
Hindustan Zinc Ltd.		4.71		3.79		-0.93
Bajaj Auto Ltd		5.69		4.24		-1.45
Reliance Industries Ltd.		7.14		4.01		-3.12
Infosys Ltd.		8.49		4.42		-4.07

In 2012 the fund raised its allocation to stocks like SBI, Kotak Mahindra Bank, HDFC Bank, ICICI Bank, ITC and Bharti Airtel. Among its top 10 holdings it lowered its allocation to Infosys, Reliance Industries, Bajaj Auto and so on (see table above).

	Company		Fund (%)		S&P CNX Nifty (%)		Over/under weight vis-à-vis benchmark (%age pts.)
Hindustan Zinc Ltd.		3.79				3.79
Kotak Mahindra Bank Ltd.		4.82		1.32		3.50
Bharti Airtel Ltd.		5.24		2.07		3.17
Bajaj Auto Ltd		4.24		1.45		2.79
HDFC Bank Ltd.		8.72		6.13		2.59
State Bank Of India		5.44		3.27		2.17
ICICI Bank Ltd.		6.58		7.09		-0.51
Infosys Ltd.		4.42		7.02		-2.60
ITC Ltd.		5.78		8.87		-3.09
Reliance Industries Ltd.		4.01		7.72		-3.71

By the end of December 2012 the fund was overweight vis-à-vis its benchmark on Kotak Mahindra Bank, Bharti Airtel, Bajaj Auto, HDFC Bank and SBI. Among its top 10 stock holdings the fund was underweight vis-à-vis its benchmark on Reliance Industries, ITC, Infosys and ICICI Bank.

Fund manager changed

This fund was managed by Prashant Kothari between June 2008 and December 2011. The current fund managers, Manish Gunwani (January 2012) and Atul Patel (June 2012), have taken over the fund only recently. Unfortunately the fund's regular outperformance of the past has vanished with the change of guard.

Watch the fund's performance closely to see if the new fund managers are able to show outperformance over the next few quarters.

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