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Mutual Fund Review: ICICI Prudential Infrastructure

Fund manager's contrarian calls give ICICI Prudential Infrastructure an edge over its peers

Launched in 2005, it showed promise the very next year followed by a great back-to-back performance. To trounce the competition in 2007 and restrict its fall in 2008 is an extraordinary feat.

 

Naren's calls have worked in his favour, mostly. In 2007, it was Metals that clinched the deal for him. As he says: "We captured the run in utilities and got out at the right time." In 2008, it was his conservative stance of cash and debt allocations, bets on the Nifty, derivatives exposure and an overall large-cap equity tilt that saw the fund through. Neither does he leverage his derivatives exposure by investing in equity, instead the surplus cash (balance amount after making the margin payment) is deployed in debt. Come 2009, the fund slipped in rankings because Naren continued with his cautious stance. In the initial leg of the rally (March 9 to May 31, 2009), it delivered a measly 63 per cent (category average: 78%). Due to this, the fund found itself at the bottom of the ladder.

 

Naren does not change his strategy abruptly, hence that glaring bout of underperformance. This need not upset investors. Right now the portfolio gives the impression of being conservative and large cap tilted, and rightly so. But he is working on changing that. "I see a good infrastructure story between 2011 and 2014. Towards that, we will aim to reconstruct a portfolio that is relatively more aggressive over the next few months," he says. While the portfolio may sport a totally different look months down the road, what you can be sure of is that his bets are valuation driven. It leads him to actively change the portfolio's complexion with no qualms about going against the herd. "We avoid sectors where valuations are euphoric and have run ahead of fundamentals.

 

Being a multi-sector theme fund, we change the sector composition in tune with market valuations," says Naren. Consequently, by default, he shows up as a contrarian compared to the peer group. Right now his exposure to Construction is nil while exposure to Engineering is lower than that of his peers. "In the case of Engineering we have been tactically reducing and increasing weightage over time. As for Construction, we believe that a high interest rate environment is not positive for this sector," he explains. The largest fund in the category, it has a large-cap orientation and dabbles in every sector barring FMCG, Media, Infotech and Pharma.

 

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