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ICICI Prudential Tax Plan: Donning a Different Cap

Stay invested for the long-term to reap the rewards

This is largely a mid-cap oriented fund, though currently half its portfolio of 54 stocks are large-cap stocks. The fund grabbed attention in 2009 by out performing the category by 30 percent, delivering 112 per cent returns. Says Sankaran Naren, CIO—equity, ICICI Prudential Mutual Fund; “The fund benefited from allocation to pharma, but what propelled the out performance was the high exposure to mid- and small-cap stocks.”

The fund has been a patchy performer since inception and has had some great runs as well. For instance it had a good run between 2003 and 2005. But by end 2006, the fund tanked, when it had less than 5 per cent exposure to large-cap stocks, at a time when large-caps were rising. Again, it failed in 2007 when its sector bets failed. The fund was holding 20 per cent in FMCG and healthcare while it remained underweight in metals and energy sectors, in which the respective indices delivered 121 per cent and 115 per cent. “The oil and gas stocks were over valued at that time. It did lead to the fund’s poor performance in 2007, but it also helped us later,” defends Naren.

In 2008, the fund was able to curtail its fall to 56 per cent, by increasing exposure in large-caps. This, was however achieved without resorting to aggressive cash and debt calls. This also helped when markets rallied in 2009. The fund outperformed its peers in each of the four quarters of 2009. The fund restricts exposure to individual stocks at 5 per cent, with the exception to large-cap stocks such as Reliance Industries, Infosys Technologies, Bharti Airtel, and SBI.

Our View
The fund currently has 15 per cent exposure to financial services and energy sector and with this increase the fund is emerging into a flexi-cap fund from a pure mid- and small-cap fund. Today, large-caps account for half the fund’s portfolio. And, though the fund may have periodic underperformances, investor should stay put for the long run to reap the rewards. After all, in the ten-year period ending November 30, 2010, this fund delivered an annualised return of 28 per cent against the 21 per cent delivered by the category.