ICICI Prudential Discovery stays with the category average in downturns & rewards long-term investors's
Last year this fund, surprisingly, was one of the best performing equity funds. So why are we surprised? Because its value-based approach has historically been a letdown during bull runs. In fact, 2007 was a black eye in the fund's performance history. "From mid-2006, the infrastructure boom picked up," says fund manager Naren. "I ran the infrastructure fund the way it was to be run and this value fund according to its theme. At that time growth stocks were booming, not value." Barring FMCG and Healthcare, rarely did a sector account for more than 10 per cent of the fund's portfolio in 2007.
This time around, it was the re-rating of stocks in the small- and mid-cap space that led to his value picks playing out superbly. Launched in July 2004, the fund was more of a multi-cap player till 2006. From 2007 onwards, it resembled a mid- and small-cap offering.
The fund's strategy is to scout for undervalued stocks that are available at attractive valuations in relation to their earnings (PE) or book value (BV) or current/future dividend. So it's not surprising to see the fund manager venture into relatively 'unpopular' stocks or sectors. For instance, his allocation to Financials in 2008. Over the past year, stocks that have made an appearance included FDC, Ruchi Soya Industries, Hyderabad Industries, Page Industries, eClerx Services, Bajaj Finance Services, B F Utilities, Hyderabad Industries, Kirloskar Ferrous Industries and India Nippon Electricals.
Neither is it surprising to see him move swiftly in and out of sectors wherever he sees value, or the lack of it. His moves in Technology in 2009 are a case in point. "In April, the sector with the lowest PE was Software. As it went higher we offloaded," he explains. Similarly exposure to Energy fluctuated. He bought into Energy but when he saw no more value left, he offloaded. Then he went into oil marketing companies and later into upstream companies. "We go wherever we see an attractive risk-return trade-off," he says.
When the market tumbled in 2008, the fund contained the downside a bit better (-55%) than the category average (-60%). "The downside protection would be moderate because the portfolio has both large-cap and mid-cap value stocks," says Naren.
Being a value fund, investors must stay invested for the long haul, which means at least 5 years.
