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It is noteworthy that India's banking and financial services sector stands on strong foundations of very prudent policy framework laid by the regulator(s). Moreover, with our economy being a developing one, the avid appetite for consumer and corporate credit, often works in favour of this sector. Also, favourable demographics and several unbanked regions makes the sector promising to invest. Likewise, other allied industries such as insurance, asset management and stock broking which are integral, also broaden the scope of investment in the theme.
ICICI Prudential Banking & Financial Services Fund (IPBFSF) is one such open-ended thematic fund, from the stable of ICICI Prudential Mutual Fund that focuses on investing in opportunities available in the banking and financial services sector. It is mandated to invest 70%-100% of its asset in equity and equity related securities of companies engaged in banking and financial services, and the rest (i.e. upto 30%) in debt market instruments. Launched in August 2008, IPBFSF has been in existence for a little over 3 ½ years now.
Fund Profile & Investment Decision Snapshot
| Type of scheme | Open-ended |
| Category | Sector/Thematic |
| Sub-category | Banking & Financial Services |
| Style | Blend |
| Launch date | 22-Aug-08 |
| Risk-Return proposition | High Risk-Moderate Return |
Investment Objective and Proposition
The fund's primary investment objective is "to generate long-term capital appreciation to unit holders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services."
Portfolio Characteristics
In the last one year, exposure of IPBFSF to large caps has ranged between 57.0%-72.0% of its assets while the exposure to midcaps was in the range of 21.0%-31.0%. The fund has occasionally taken aggressive cash calls in the past 1 year as its exposure to debt and cash has remained in the range of 3.0%-16.0%.
Being a sector fund, IPBFSF follows top-down approach while buying stocks for its portfolio whereby it invests only in Banking and Financial Services Sector. Under normal circumstances, the fund invests about 70%-100% of its assets in equity and equity related instruments belonging to Banking and Financial services sector; including derivatives to the extent of 75% of the net assets. For defensive positioning of the portfolio, the fund manager has the flexibility to invest in debt, cash and cash equivalent assets to the extent of 30%. Also, the fund has freedom to invest across market capitalisations and is benchmarked against BSE BANKEX.
Equity Portfolio
| Holdings | Nov 2011 | Dec 2011 | Jan 2012 | Feb 2012 | Mar 2012 |
| HDFC Bank Ltd. | 10.6 | 10.8 | 10.8 | 15.3 | 22.2 |
| ICICI Bank Ltd. | 19.8 | 21.9 | 21.9 | 19.3 | 17.8 |
| IndusInd Bank Ltd. | - | 6.6 | 6.6 | 7.9 | 8.0 |
| Bank Of Baroda | 6.4 | 5.8 | 5.8 | 6.0 | 5.9 |
| Sundaram Finance Ltd. | 2.5 | 4.0 | 4.0 | 5.2 | 5.4 |
| Axis Bank Ltd. | 9.3 | 5.0 | 5.0 | 5.3 | 5.1 |
| State Bank Of India | 6.6 | 6.0 | 6.0 | 4.8 | 4.4 |
| ING Vysya Bank Ltd. | 2.4 | 3.8 | 3.8 | 3.7 | 3.7 |
| Mahindra & Mahindra Financial Services Ltd. | 2.0 | 2.5 | 2.5 | 4.2 | 3.6 |
| IPBFSFC Ltd. | - | - | - | 3.6 | 3.6 |
As per the portfolio disclosed on March 31, 2012, the fund holds in all 18 stocks. Top-10 stocks constitute 79.7% of the portfolio, while its top-5 sector concentration has been 97.2% of its total portfolio. As on March 31, 2012, the large caps constitute 71.5% of the portfolio, while its exposure to mid and small caps was at 25.6%, while cash and cash equivalents assets to the tune of 2.8%. The fund manager of IPBFSF has not churned the portfolio aggressively as revealed by its portfolio turnover ratio of 0.68 times - which is considered low to moderate.
How IPBFSF has fared vis-à-vis its peers
| Scheme Name | 6-Mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Std. Dev. (%) | Sharpe Ratio |
| Reliance Banking (G) | 6.3 | -11.5 | 30.5 | 20.9 | 9.66 | 0.26 |
| Sahara Banking & Financial Services (G) | 5.4 | -10.4 | 29.9 | - | 9.88 | 0.25 |
| Religare Banking (G) | 5.0 | -8.4 | 28.6 | - | 8.46 | 0.25 |
| ICICI Pru Banking & Fin Serv (G) | 8.4 | -7.8 | 28.1 | - | 8.79 | 0.24 |
| UTI Banking Sector (D) | 7.7 | -9.6 | 28.0 | 15.1 | 9.25 | 0.24 |
| Sundaram Fin Serv Oppor (G) | 6.6 | -11.7 | 26.3 | - | 9.88 | 0.22 |
| BSE BANKEX | 8.1 | -8.0 | 30.0 | 12.2 | 10.41 | 0.24 |
The table above reveals that IPBFSF's performance has been ordinary. Over a 3-Yr time frame, the fund has generated returns at 28.1% CAGR, thereby underperforming its benchmark index – BSE BANKEX with a noticeable margin. On the volatility front, the fund has exposed its investors to low risk (as revealed by the Standard Deviation of 8.79%) thereby being less volatile than some of its peers in the category as well as its benchmark. On the risk-adjusted return parameter too (as gauged by the Sharpe ratio), returns appear mediocre in comparison with its peers.
Performance across Market Cycles
| BEAR PHASE | BULL PHASE | CORRECTIVE PHASE | |
| 22-Aug-2008 | 09-Mar-2009 | 05-Nov-2010 | |
| ICICI Pru Banking & Fin Serv (G) | -40.2% | 117.5% | -13.2% |
| BSE BANKEX | -45.4% | 135.5% | -13.6% |
Study of performance across market cycles reveals that IPBFSF has performed reasonably well during the bear and corrective market phases. However, it has failed to outpace its benchmark in the bull market phase.
Fund Manager Profile
| Name of the Fund Manager | Mr. Venkatesh Sanjeevi |
| Total Work Experience | Over 4 years |
| Managing the fund since | Feb-12 |
| Qualifications | B.com, ACA, PGDM |
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