It's riding high now. This core-sector fund which went open-end a year-and-a-half ago has fetched wonderful returns in an otherwise-sluggish stock market.
What has driven Prudential ICICI Power's 45 per cent growth against the category's 33 per cent loss in the past year, is its theme. Sharp gains in relatively medium-cap stocks such as Eicher Motors, ABB and Crompton Greaves, auto and diversified sectors have spearheaded the fund's NAV growth. However, the overall credit for this goes to its active sectoral rotations.
On starting its open-end avatar in September 2001, it maintained a lot of idle cash. As a result, during the bull run after 9/11 leading upto the budget in 2003, this fund underperformed its benchmark, the Nifty. This underperformance was compensated for an outperformance in the months leading upto 9/11. Lack of adequate portfolio disclosure, however, makes it difficult to assign a reason for this.
In the second quarter of 2002, a higher exposure to auto, energy and metal stocks paid off well. Again towards the last quarter of the year, departure from energy and metal stocks to technology and engineering stocks did the trick.
As a result of these sectoral moves, the fund's portfolio turnover seems to be high. Only two-three stocks have figured consistently in the portfolio in the past year-and-a-half. Fund manager Mihir Vohra, however, justifies this stating that ''relative weightage of stocks is adjusted based on opportunity cost and relative valuations''. And, so far, the results of this turnover have also been good.
Going back to its closed-end tenure spanning over six years, Prudential ICICI Power started as a laggard across market cycles. Its re-orientation towards technology during the bull run of 1999 helped it trounce its 11 closed-end peers. But this came at a cost. The fund's overdependance on technology saw it crash to the bottom of the performance charts in 2000.
If economic growth picks up, this scheme may continue to be among the winners. With all sectors, except FMCG in its kitty, it can be treated as a diversified fund with a heavy exposure towards cyclicals. The lack of defensives may, however, increase the risk in the portfolio.
This article was originally published on August 18, 2003.
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