In Interview with Outlook Money George Joseph, Fund Manager, ICICI Prudential AMC says ‘stock picking is influenced by the bottom-up rigour’.
1. What is the composition of the fund and how is the stock selection done?
The fund follows an unconstrained multi-cap strategy with an endeavour to provide long term, risk-adjusted returns that seek to outperform the scheme benchmark.
While building the portfolio, a combination of top-down and bottom-up approach is adopted. The sector allocations are based on the top-down view, and stock picking is influenced by the bottom-up rigour. The proportion of large-cap and mid/small-cap stocks in the portfolio depends on the relative valuations.
The fund invests in both growth- and value-oriented stocks with focus on the fundamentals of the business, industry structure, and quality of management, financial strength and key earnings drivers.
2. What is the investment universe for this fund?
The benchmark index for this fund is CNX 500. While the portfolio is constituted by stocks across sectors and market capitalisation ranges based on strong fundamentals and good growth potential, the expensive stocks are avoided. We also assign weightage to corporate governance standards of the companies where we are invested and how they treat minority shareholders.
3. Does the three year lock-in help when managing this fund?
The three year lock-in period gives us the leeway in investing in good companies without worrying about redemptions and instead concentrating on building a good portfolio. We can buy into—and stay invested in companies for a long haul, without worrying about short term performance of these stocks. Companies take time to grow and expand their businesses, which in turn would deliver financial results. So while investing in these stocks a lot of patience and discipline is required to see the company performs, increase its profits and thereby add to shareholder returns. Therefore, we believe that three years is a reasonable period of time to see the desired results being achieved by the companies in the portfolio.
4. What is the average holding period of stocks in this fund?
The fund adopts a long term approach while picking stocks and the investment horizon is more than three years.
5. What should an investor expect when investing in this fund?
Since the fund invests with a long term view and adopts a blend of bottom-up and top-down approach in picking stocks/sector for investment, the fund is a long term wealth creation solution with an investment horizon of 5 years and above.
6. What will you attribute the relatively superior performance of your fund to in recent years?
At ICICI Prudential AMC, we have an experienced 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 focused bottom up picks and avoiding expensive/momentum stocks has aided the fund’s performance. Also, tactical allocation of weightage between large-cap and mid/small-caps also has helped in consistent long term performance of the scheme.
7. What is an ideal portfolio size for this fund?
The fund follows an unconstrained multi-cap strategy and hence it is structured in a way that it is scalable.
