S. Naren, fund manager, ICICI Prudential Dynamic Plan, talks about the the macro and bottom-up factors taken into consideration for the fund's portfolio.
What is the Investment strategy for the fund? (Including internal rules investment universe, capitalization orientation and on maximum cash allocation)?
The ICICI Prudential Dynamic Plan is a diversified flexi-cap fund that utilizes a multi-prong strategy combining cash, capitalization and sector concentration. Its composition is moved with agility to adapt to market changes using a blend of growth and contrarian strategy. Top-down and bottom-up approach, both play an important role. We start with a top-down strategy to reach at the investment-worthy sectors and to get a view of large cap versus mid-cap allocation. Thereafter, cash levels in the portfolio are determined using an in-house Price to Book Value (P/BV) model in which current market levels are compared to the fair value range to determine under or over valuation of the market. The model seeks to book profits when markets have risen and buys more equity when markets are cheap, thus structuring the fund with an intent to benefit out of volatility. The equity levels could range between 65-100%.
What are the essential attributes for the stocks to be in our portfolio?
For stock selection, both the macro and bottom-up factors are taken into consideration. A deep fundamental research is conducted in order to identify value, if there is a long-term view on the stock. The fund gradually builds or brings down a sector or stock skew based on the relative valuation or contrarian view.
If there is negative view in the market on the company, we conduct a thorough analysis of the thought process of sellers before taking a contra-call. We also look for companies with temporary difficulties but having growth potential over long term.
-What kind of stocks never enters your portfolio?
A broad framework for stocks that would never enter the portfolio would be based on the promoter's background. For instance, we are uncomfortable investing in companies, where the minority interest doesn't get taken care off well.
Also, overvalued stocks particularly in a cyclical context are unlikely to enter the portfolio. However, we are a believer of John Maynard Keynes' famous adage- 'When facts change, I change my mind'.
What will you attribute the relative consistent performance of your fund in recent years?
The underlying Price to Book Value model along with combination of top-down and bottom-up strategies has led this fund to create reasonable returns and long term wealth for its investors.
Investing in a blend of undervalued quality midcaps and small caps has been another factor that contributed to consistent performance of the fund. Even during a weak market, the fund shows prowess and more so is able to contain the volatility well.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
We could have bought some of the quality stocks in 2007 and held through a cycle. Today, we find these stocks overvalued.
Please click here to read the analysis of this fund.