Download Mutual Fund Scheme Analysis

Mutual Fund Scheme Analysis
Name of Scheme: ICICI Pru Discovery Fund
January 11, 2010
Overview: Considering its ability to produce superior returns over the long run and to pursue the strategy of investing in undervalued stocks which
contain strong growth perspective, investors can continue their holdings in the midcap scheme and can stay further at least for a year or so. Investors
with high risk appetite and intending to stay for longer can consider accumulating the units of ICICI Pru Discovery scheme. Considering present market
conditions and the scheme’s volatile nature (as it invests in mid & small cap stocks), investing through Systematic Investment Plan (SIP) is advisable at
this point of time.
Performance Appraisal: The scheme, ICICI Pru Discovery registered decent returns over long run compared to the other schemes in mid and small
cap category. It posted a trailing return of 5% as on date since we recommended in our weekly reports that was published on August 02, 2010. Although
the scheme underperformed its benchmark (9% in terms of absolute return), it outperformed its category (1%) during the period.
Considering periodical returns, over a five-year period, the scheme registered a compounded annual return of 18.02% (6th position among 16 schemes
in the category), which was higher than that of its category and benchmark. The category and the benchmark registered growth of 16% and 15%
respectively for the same period. The scheme has managed to beat its benchmark Nifty and category by a wide margin over the three-year time period.
It registered a return of 10% (1st position). The category and the benchmark tumbled and showed negative return of 3% and 2% for the three year
period. As far as short-term performance is concerned, the fund generated 19% of one-year return ended 7th January 2011 whereas its category and
benchmark reported 14% and 13% of returns respectively. During periods of market turmoil in 2008 (over the period of 14 months from Jan 2008 to
March 2009), the performance of the scheme was good compared to peer schemes. Its NAV plunged around 45% (compounded annually) whereas the
category and the mid cap index ‘CNX mid cap’ fell 56% and 52% respectively.
Fund Manager: This scheme is managed jointly by Mr. Sankaran Naren and Mr. Rajat Chandak. Mr. Naren is a B.Tech from IIT, Chennai and holds a
MBA in Finance from IIM Kolkata. Prior to joining ICICI Prudential AMC, he has worked with various financial services companies like Refco Sify
Securities India Pvt. Ltd., HDFC Securities Ltd. and Yoha Securities in various positions. Mr. Chandak is a Commerce graduate and holds a MBA
degree. He is with ICICI Prudential AMC since May 2008. He has earlier worked as an equity analyst for 1 year. They manage other schemes jointly as
ICICI Pru Dynamic (4 star by value research), Growth (4 star), Indo Asia Equity (3 star), Infrastructure (5 star) and Tax (4 star).
Retail Research
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Unit Growth of investments Vs. Benchmark
(Rs. 10,000 invested since Aug 2000.)
60000
ICICI Pru Discovery
Nifty
50000
40000
30000
20000
10000
Nov-10
Aug-10
May-10
Feb-10
Nov-09
Aug-09
May-09
Feb-09
Nov-08
Aug-08
May-08
Feb-08
Nov-07
Aug-07
May-07
Feb-07
Nov-06
Aug-06
May-06
Feb-06
Nov-05
Aug-05
May-05
Feb-05
Nov-04
Aug-04
0
Risk measures: This scheme has done well in terms of its risk ratios of standard deviation, Sharp and Jensons Alpha. As far as Sharpe measure is
concerned, the scheme has scored 0.07% of excess returns over risk free rate (6% p.a 91D T-bill) for per unit of risk. This is more than that the
scheme’s category average of 0.04. The Standard Deviation, measure of volatility at 0.86% for the scheme, is lower compared to the category average
of 0.97%. The scheme scored 0.03% in terms of Jensons Alpha. Alpha measures the ability to generate the consistent return over benchmark. Hence,
those statistical numbers prove the ability of scheme to stand against risk.
Rating & Ranking: The scheme has been rated as ‘5 star’ by Value research under Equity diversified Mid & Small Cap category, which indicates high
performance on a risk adjusted return basis. The performance of the funds are rated and classified by value research in the following ways. Top 10%
funds in each category were classified ‘*****’ funds, the next 22.5% got a ‘****’ star, while the middle 35% got a ‘***’, while the next 22.5% and bottom
10% got ‘**’ and ‘*’ respectively. Crisil has assigned “CRISIL CPR 2” rank under “Small & Mid cap equity funds category” which indicating “Good
Performance”. The criteria used in computing the CRISIL Composite Performance Rank are Superior Return Score, based on NAVs over the Quarter
ended September 2010.
Cash Equivalents (%) (LHS)
Sensex (RHS)
23000
21000
19000
17000
15000
13000
11000
9000
7000
5000
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
24
21
18
15
12
9
6
3
0
Above diagram displays cash level of scheme along with Sensex movements over periods.
Portfolio: ICICI Pru Discovery manages a highly diversified portfolio. The fund managers have been following a ‘value’ based investing style for stock
picking. The value philosophy focuses on discovering stocks that have high potential, but are currently lying low at a discount to their inherent value (low
PE). The basic inclination of the fund always tilts towards mid cap and small cap stocks. Considering last one year portfolio, he has kept almost 70%
equity assets in Mid & Small cap side. In the latest portfolio, the exposure on Mid & Small cap stocks was kept about 68% (Large Cap = market
capitalization of Rs. 10,000 crore and above; mid cap between 1,000 crore to 10,000 crore and small cap is below 1,000 crore). The scheme has
managed its portfolio by holding an average of 70 stocks. Turnover ratio for this scheme is 112% to net assets. Sterlite Ind, Bharti Airtel and CESC Ltd
are the stocks that topped in its latest portfolio as 5.55%, 4.27% and 3.91% to its net assets respectively. The expense ratio of 1.94% for the scheme is
lower compared to the category’s 2.12%. As far as cash position is concerned, the scheme held an average of 8.40% of its net assets as cash during
market correction in the year 2008. As of December 2010, the scheme is having 9.53% as cash to its net assets.
Conclusion: Given its commendable long term track record and value based investment strategy which helps to ride over uncertain situations, investors
can consider the scheme. As the scheme predominantly invests in mid and small cap stocks, high risk appetite investors can invest in this scheme to
hold for at least 2 to 3 years. Investing through SIP in the scheme is more advisable at this juncture.
Analyst: Dhuraivel Gunasekaran.
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Fax: (022) 3075 3435
Corporate Office: HDFC Securities Limited, I Think Techno Campus, Building –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton
Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com
Disclaimer: Mutual Fund investments are subject to risk. Past performance is no guarantee for future performance. This document has been prepared
by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made
available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is
from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to
time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or
other services for, any company mentioned in this document. This report is intended for Retail Clients only and not for any other category of clients,
including, but not limited to, Institutional Clients
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