The ICICI Pru Banking & Financial Services Fund has yet to make a mark. If you look at its year-to-date or 1-year return (as on November 30, 2009), the fund underperforms its benchmark. On the other hand, it’s fairly good in a peer comparison.
Benchmarked against the BSE Bankex, the majority of the fund’s investments are not components of this index. Currently the fund has 64 per cent of its assets in such stocks while the average allocation since launch is 61 per cent. That would explain the underperformance in comparison to the benchmark. It would also explain why the fund fell by a lesser amount in the December 2008 and March 2009 quarter.
HDFC, IDFC, Srei Infrastructure Finance, Sundaram Finance, Max India, Aditya Birla Nuvo and Reliance Capital are some other stocks that have made an appearance. While he refused to comment on individual stocks
Launched in August 2008, it seemed natural that the fund manager would hold onto cash till the crisis tided over. But surprisingly, the fund manager did not shirk equity and the equity allocation in the last quarter of 2008 averaged a fairly high 76 per cent. As a result, there was no dramatic benchmark outperformance in the very first quarter. But he held a high cash allocation more recently when the market began to rally. Between March and May 2009, the fund averaged 24 per cent in cash which got lowered to 17 per cent by June.
The result: The fund showed a marked underperformance in the June 2009 quarter. India, along with the world, was seeing some signs of a turnaround but they were not certain. Banks were restructuring assets at a high pace which was discomforting. And therefore, we were utilizing cash in a very measured way.
Though the mid-cap allocation has risen, the fund has historically had a large-cap bias. However, Poddar disagrees as to the market cap bias. It is entirely dependent on the opportunitie. Fund has no bias as long as it meets our critical size for investment, qualitative parameters defined for stock selection and is rightly valued. Large caps provide liquidity and relative stability while mid cap names provide higher potential returns.
