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Chart Talk: ICICI Prudential Focused Bluechip Fund November 11, 2011
Fundsupermart.com launches Chart Talk, a series of articles in which we analyze the performance of our Recommended Funds as compared to the benchmark, other funds in their category as well as the fund reaction to market movements. Today, we talk about ICICI Prudential Focused Bluechip Fund
Author : Niketa Agarwal


 Chart Talk: ICICI Prudential Focused Bluechip Fund

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 a quarter-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 the bull market 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 investing in equity and equity related securities of about 20 top blue chip companies in India. The fund has an average allocation of 88.58% in equities from September 2010 till June 2011. (Source: Ace).

Investment Strategy of the Fund

FSM Research found that the fund has used derivatives every month since its inception except for December 2009. In 2008, derivatives accounted for, on an average, 16% of the portfolio's investment. The fund has an average allocation of 7.08% in derivatives from September 2010 till June 2011. The fund has an average 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 economy sectors is designed to balance this risk. The fund's strategy is to invest in about 20 large cap stocks from key sectors like Banking, Information Technology, Automobiles, Refineries and Metals. These five sectors account for over 50% of the portfolio investments. Our research shows that Banking is the single largest sector that this fund invests in. The fund manager holds an extremely positive view on the banking sector and has maintained a high average allocation of 22.72% in the portfolio from September 2010 till June 2011. Other than Banking, Information Technology, Automobiles, Refineries and Metals are the most important sectors to this fund.

Fund versus Benchmark: Since Inception

The 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 2011 in order to map 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 Compilations

Chart 1 shows that the fund has consistently outperformed its benchmark since 01 October 2008 except the first quarter from July-September 2008. However, if we look 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 12.97% of the benchmark for the same time period. [The fund outperforms when it generates higher returns than its benchmark; the fund underperforms when it generates lower returns 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-q basis)
 Average 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 us that the fund has 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 does not like to have 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 2011

Source: iFAST Compilations

Fund versus Benchmark: Year – on – Year Basis

Chart 3 shows the CAGR returns at 1 year, 2 years and 3 years of ICICI Prudential Focused Bluechip Fund as compared to its benchmark returns on a year-on-year (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 Compilations

As 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 0.84 which means that the fund exhibits lower volatility than the market. (Source: ICICI Prudential Focused Bluechip Fund Factsheet as on 31 October, 2011). (Beta indicates the volatility 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 fund is less volatile than the market.)

Fund versus Category Performance

The fund belongs to the large cap category. We compared the fund performance with 40 funds belonging to the large cap category. Chart 4 shows the performance of 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 Prudential Focused Bluechip Fund.

Chart 4: ICICI Prudential Focused Bluechip Fund versus Category Performance

Source: iFAST Compilations

As 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 0.84 which means that the fund exhibits lower volatility than the market. (Source: ICICI Prudential Focused Bluechip Fund Factsheet as on 31 October, 2011). (Beta indicates the volatility 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 fund is less volatile than the market.)

Fund Performance in Up Market and Down Market

The fund performance during bear and bull markets have been calculated in order to see how the fund has fared across all market conditions from 1 July 2008 till June 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 Quarters

Up

1.04%

3 out of 3

Side

1.57%

7 out of 8

Down

5.39%

1 out f 1

The 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 2011.  The fund delivered 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 October- December 2008 from July 2008 till June 2011 in which the fund has outperformed the benchmark.

Conclusion

The ICICI Prudential Focused Bluechip fund is a relatively new fund but has displayed good performance till now. The fund can be considered as a slightly more risky investment as a result of its exposure in derivatives. However, its exposure to few sectors which prove to be concrete like banking and automobiles reduces the 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 than the markets. Therefore, 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 large cap fund.


Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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