Being a sectoral fund, ICICI Prudential Infrastructure Fund is a riskier bet than other equity diversified schemes
LAUNCHED in August 2005, ICICI Pru Infrastructure Fund is one of the oldest infrastructure schemes. It is the fifth largest diversified equity fund in the country with an asset under management (AUM) of over Rs 3,700 crore. Though the fund took over quite well and lived up to the expectation of investors, of late, its performance has not been up to the mark.
Performance:
The fund showed good results at the beginning. It outperformed all broader market indices like the Sensex and the Nifty in 2006. Next year, investment in metals stocks secured returns for the fund. It employed a strategy of investing in undervalued sectors and booked profits at the right time. In 2008, the conservative stand of cash and debt allocations and a tilt towards large-cap equity saved the fund from drowning in the meltdown. That year, it earned a platinum grade in the ET Quarterly MF ratings
Come 2009, the fund slipped in rankings to silver since the conservative approach of the fund manager didn't help the fund capture the upsides of the market. Most of the movement happened in the mid-cap and small-cap funds, whereas ICICI Pru Infrastructure Fund continued to be oriented towards large-caps. The fund delivered 68% returns as against 75% and 81% gains in the Nifty and the Sensex, respectively in 2009. In 2010, it has continued its struggle to keep pace with the gains in the benchmark indices.
Portfolio:
Being a sectoral fund, ICICI Pru Infrastructure Fund is riskier than other equity diversified schemes. Since September 2009, the fund is diversified to just about 40 stocks, with top five stocks alone comprising almost 40% of the investment. Such a high concentration increases the fund's risk per stock.The fund holds prominent large-cap stocks including RIL, Bharti Airtel, Bhel, NTPC, ONGC, and ICICI Bank to name a few. The fund is continuously reducing its exposure to the financial services sector, which has outperformed in the recent past. It is also betting heavily on telecom and metal sectors, which have not shown good track record in the past six months. "We avoid sectors where valuations are elated and have run ahead of fundamentals," says the fund manager.
Unlike other infrastructure funds, this fund has low exposure in construction and engineering sector. The fund has meager exposure to big stock like L&T also. Since a year now, real estate has not found any place in the fund, before also it had as low as 1% investment in this sector. The fund manager is bullish on oil & gas and power sectors. The fund invests 40% of its investment in these sectors.
At all times, more than 85% of the fund is invested in equities. The fund has maintained cash holdings to 10-12%, but on rare occasions it has gone up to 42%. The portfolio turnover ratio of the fund is 108%. This is due to the conservative approach of the fund manager. The churn is restricted to sectors with high volatility like metal, power and financial services.
Our View:
The fund has done well in the past and has the potential to do well in future. However, the fund manager's decision to concentrate more on limited stocks has adversely impacted the performance of the fund. In the infrastructure space, the stock selection has not been appropriate.
The Indian infrastructure sector is expected to flourish further in the coming years and this should help the performance of ICICI Pru Infrastructure Fund. However, given its track record for the past couple of quarters, investors need to observe its performance in the near term before making fresh investments.
On the closing note, Still This is the best Infrastructure fund of the lot.
