ICICI Prudential Dynamic Fund - Regular Plan

5 Value Research
Change from previous, NAV as on Jul 09, 2014
Category: Equity: Large & Mid Cap
Assets: R 4,254 crore (As on Jun 30, 2014)
Expense: 2.23% (As on Mar 31, 2014)
Investment Objective

The scheme aims to invest primarily in equities and for defensive consideration in fixed income securities including money market instruments with the aim of generating capital appreciation. The actual percentage of investments in will be decided after considering the prevailing market and economic conditions.

Fund Managers
+ Mittul Kalawadia since Feb 2012
+ Sankaran Naren since Feb 2012
As on May 20, 2014

In a sense, ICICI Prudential Dynamic is an odd one out in our current selection because it is not intentionally a large and mid-cap fund. At least, that's not the main point about its design. This is a dynamic asset allocation fund which seeks to move money from equities to fixed income securities depending on market conditions. Basically, the idea is to reduce equity exposure when the markets are overpriced. This move is algorithmic-formula driven-and not decided actively by the fund manager.

It also happens that the equity portion is run like a large- and mid-cap equity fund, thus its place in our category. Historically, equity allocation has ranged from roughly 75 per cent to the high 90s-the current level being 85 per cent and the last year's average being 87 per cent. This indicates that the fund's allocation algorithm thinks the equity markets are towards the balanced side.

Does the theory work? It does appears so. With exception of 2007-which was a strange year, valuation-wise, the fund has always beaten its benchmark; it has always risen more than the benchmark in a rising market and fallen less in a falling market. The result-in its 12 years, the fund has gained a cumulative 100 per cent (6.5 per cent p.a.) relative to the benchmark, while the relative rate of return during the period has been 26.5 per cent, accumulating to over 14 times the original value. This returns plus risk protection formula has also led to a consistently high Star Rating of at least four stars for more than four years now.

Looking beyond the strategy at the actual execution, one notices that large cap exposure has been in the 60 per cents over the last year, although declining. Unlike some funds, this one doesn't shy away from a small exposure to small caps. The combination of relatively high mid-cap and small-cap exposure along with the protective asset allocation is clearly a potent combination. Of course, superior stock selection has to play a role in any strategy. In the final consideration, this fun has an enviable track record of bringing impressive gains to its investors.