There's no arguing with the numbers. It has been ruling the performance charts. Besides calendar year performances, even the year-to-date (YTD) and 1- and 2-year returns are ahead of the category average.
Since the fund was launched in 2008, it's only logical to assume that timing did play an important role in pushing up its initial returns. Focused Bluechip was launched in May 2008 when equity markets across the globe were falling. As the market kept going down, the fund manager was in no tearing hurry to deploy cash and the debt exposure averaged close to 30 per cent for the first five initial months of its launch. Where equity was concerned, the portfolio had an exposure of around 16 per cent to derivatives between July and December 2008. Yet, this exposure to debt and equity derivatives never made the fund stand out. Its performance in the September 2008 was surprisingly almost equal to the fall of the category average though it managed to stem the slide better in the December quarter.
By the time the market began to rally in March 2009, the fund held close to 91 per cent of its assets in equities (including equity derivatives). After that, there has been no looking back.
Last year, this fund had a name change. ICICI Prudential Focused Equity was renamed as ICICI Prudential Focused Bluechip Equity. The reason was the market perception behind that name. People were wary of putting money in a very concentrated portfolio, not realising that the fund's mandate was to only be concentrated in the large-cap space. Hence, the change in name to bring in more clarity where the general perception of the fund is concerned.
The mandate of the fund allows the fund manager to explore options from the Top 200 stocks in the equity universe, in terms of market capitalisation on the NSE (see Investment Strategy). But Kothari has restricted his universe to Top 100 stocks. Within that, he has invested only in 36 stocks this far, some of which have been held since inception. Currently, close to three fourth of the fund's portfolio comprises of Nifty stocks.
What you will not find here is a radically changed portfolio every now and then. Since Kothari prefers staying put once he buys a stock, the portfolio changes its complexion pretty gradually. "When we look at picking stocks for this fund, because of the concentrated bets, we prefer taking a long-term view on the stock. So we avoid positions which would require us to invest for just a few months and move out," says Kothari. However, if the price of the stock gallops and he finds it way of his comfort zone in terms of valuation, he would exit.
The portfolio structure entails that the fund manager does not buy into a stock simply because the latest quarterly results are good or because the company has got a bulging order book. Kothari keeps emphasising that to hold the stock for the long term, the comfort level and conviction must be high. How does he arrive at this conclusion? "There are three dominant factors I consider when buying a stock in this fund. The underlying business must be very stable. The company cannot be heavily leveraged. I should have a fair degree of confidence in the management of the company," he explains. Since his options are restricted to just the best in the large-cap space with no leeway to dabble in mid caps, how does he choose between two apparently identical stocks? To put it more graphically, for instance, what would be the determining criteria from picking a Hero Honda as against a Bajaj Auto? At such a juncture, it's the personal call of the fund manager that makes it or breaks it for the fund.
His discomfort with high leverage companies would explain why Real Estate never featured in his portfolio. Neither does Construction feature but that could be because there are probably no such options amongst the cream of the large caps. Surprisingly, his exposure to Metals has always been on the lower side. The BSE Metal index delivered 233.68 per cent in 2009. All through that year, exposure to this sector never crossed 4 per cent. In hindsight, that was a big miss!
The limited universe and tight portfolio with low amount of churning are the mark of this portfolio. Though when opportunity presents itself movements are swift. To cite an example, in May 2009, when market posted an exceptional gain, Kothari was quick to lower the stake in Oil & Gas sector from 18 per cent to 11 per cent the very next month and increase it in Financial Services from 10 per cent to 21 per cent.
A pretty reliable option for an equity investor who wants to steer clear of mid and small caps.
Our View
Why we picked this fund
Since the fund has yet to complete three years of existence, it cannot be ranked or appear in our recommended list of funds.
Nevertheless, it makes for an ideal 'Random Pick' selection simply because it has made its presence felt in its category. In the past two calendar years, it has been the second best performer in the 'Equity: Large Cap' category. A performance way too good to ignore!
What we like about it
$ The sharply focused large-cap play
$ Its discipline to stick to its mandat
$ Its performance numbers
$ What can go wrong
$ Since stock bets are very focussed, a wrong one could backfire strongly
$ When mid and small caps rally, this fund is not in a position to capitalise on that movement
