George Heber Joseph, fund manager, ICICI Prudential Long Term Equity Fund, says that the ultimate objective is to give the investors a good risk adjusted return experience over a 3 year cycle.
What is the investment strategy for the fund?
The fund follows an unconstrained multi-cap strategy with an endeavour to provide long term, risk-adjusted returns that beat the benchmark. The proportion of large cap and mid/small-cap stocks in the portfolio depends on the relative valuations.
While building the portfolio, a combination of top-down and bottom-up approach is employed. The sector allocations are based on the top-down view, and stock selection is influenced by the bottom-up rigour.
It could invest in both growth- and value-oriented stocks with focus on fundamentals of the business, industry structure, quality of management, financial strength of the company and key earnings drivers.
What is included in the portfolio and what is avoided?
We pick stocks that our analysts perceive as having a reasonable upside potential.
While the portfolio is constituted by stocks across sectors and market capitalisation based on robust fundamentals and growth potential, the expensive stocks and sectors even in growth oriented segment are generally avoided. We also assign weightage on corporate governance standards of the companies where we are invested and how they treat their minority shareholders.
Tax planning funds have a different redemption pattern given the three year lock-in compared to the diversified equity schemes. How much does this factor play a role in fund management and investment? Does it have any bearing on cash allocation?
The three year lock-in period gives us the leeway to buy into-and stay invested in under-researched midcap companies for the long haul, without worrying about having to exit these stocks under redemption pressures and/ or short term underperformance of these stocks.
For any company to deliver results requires much patience since companies need time to grow and expand their businesses, increase their profits and shareholder returns. Over a three year cycle, it is possible to make reasonable returns by holding the right companies in the portfolio. We encourage investors to stay beyond the 3 year lock-in with an aim to benefit from long term returns that equity provides.
The ultimate objective is to give the investors a good risk adjusted return experience over a 3 year cycle and the lock-in may allow investors to appreciate the benefit of long term investment in equities. In general, at ICICI Prudential Mutual Fund, we do not take cash calls in case of equity schemes, barring in case of funds that are defensive in nature with cash allocations to benefit out of volatility. Therefore, ICICI Prudential Long Term Equity remains invested across market cycles.
What has attributed the relative consistent performance of your fund in recent years?
At ICICI Prudential AMC, we have a robust research team and process-driven approach for fund management. This ensures consistency in performance of our funds.
For this fund, the philosophy of making value focussed picks and avoiding momentum stocks has aided the fund's performance. Also, tactical allocation of weightage between large cap and midcap as helped in consistent performance of the Scheme.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
We have remained underweight on FMCG sector due to overvaluations. Despite rich valuations, a significant Price to Earnings expansion took place in these companies. Consequently, the fund missed the rally in these high quality FMCG/Consumer companies.
Please click here to read the analysis of this fund.
This article was originally published on March 23, 2017.
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