ICICI Pru Value Discovery Fund: Growing through High Conviction Value Bets

ICICI Pru Value Discovery Fund is a conviction-driven Value-style mutual fund that strictly adheres to its investment mandate of value investing. The fund seeks opportunities in undervalued stocks that are fundamentally sound but available at attractive valuations and offer higher growth potential over the long term.

ICICI Prudential Value Discovery Fund is a true-to-style Value Fund that aims to identify and seize opportunities in stocks that are trading at a discount to their fair/intrinsic value. Since its inception in August 2004, this value-oriented fund has consistently upheld its reputation by carefully selecting high-potential undervalued stocks across market caps and sectors, leading to an impressive appreciation at a CAGR of nearly 20%.

The focus on value-buying opportunities and prudent investment strategies followed by ICICI Prudential Value Discovery Fund have resulted in significant gains for its long-term investors. With assets under management (AUM) amounting to Rs 37,570 crore (as of December 2023), the fund currently stands as the largest scheme in the Value Fund category.

It is noteworthy that ICICI Prudential Value Discovery Fund has even shown a trait of witnessing pro-longed underperformance when value stocks move out of favour, as witnessed during the bull phase of 2016-2020 which was dominated by growth stocks. Nonetheless, by swiftly redirecting its focus from the over-valued segment to the under-valued segment, the fund possesses the capability to reward patient long-term investors with substantial gains. Notably, ICICI Prudential Value Discovery Fund demonstrated resilience during the market crash of 2020 and actively participated in the ensuing bull phase, surpassing the benchmark and outperforming the majority of its peers within the Value Fund category by a considerable margin.

In the last 5 years, ICICI Prudential Value Discovery Fund has grown at a CAGR of 22% compared to a growth of 17.6% in its benchmark Nifty 500 - TRI. An investment of Rs 10,000 in the fund five years ago would now be worth Rs 27,086, whereas a simultaneous investment in its benchmark would have now amounted to Rs 22,454.

ICICI Prudential Value Discovery Fund has consistently ranked among the top quartile performers in the Value Fund category across most time frames. After witnessing a prolonged period of underperformance from 2016 to 2019, the fund benefitted immensely from the substantial recovery witnessed in the value-investment segment and exhibited superior performance in the last few years.

In the last 1-year, 2-year, and 3-year time periods, ICICI Prudential Value Discovery Fund has outperformed the benchmark Nifty 500 - TRI by a margin of about 8 percentage points and has also outpaced many of its peers by a significant margin. Even over the longer 5-year and 7-year period, the fund has managed to generate a noticeable lead over the benchmark and the category average.

The fund's strategy of staying away from momentum-driven bets helps reduce the risk and enables it to outperform the benchmark and its peers. Consequently, ICICI Prudential Value Discovery Fund stands out in terms of risk-adjusted returns. Its volatility, as denoted by the Standard Deviation (12.7%), is the lowest in its category and much lower than the benchmark. Moreover, its Sharpe ratio (0.47), is currently among the best in the category and far ahead of the benchmark.

[Read: 3 Best Value Funds for 2024 - Top Performing Value Mutual Funds in India]

What is the investment strategy of ICICI Pru Value Discovery Fund?

ICICI Prudential Value Discovery Fund endeavours to invest in stocks of companies available at a significant discount to their fair valuation. The scheme's investment strategy is based on the fact that the market does not always efficiently match a stock's price with its intrinsic value.

The fund adopts a 'Bottom-up' strategy, to identify and select undervalued stocks after evaluating them on several parameters such as historic performance, earnings, book value, free cash flow, and dividend yield. Additionally, the fund manager also takes into account factors such as management quality, business competitiveness, and growth prospects of companies in the investment evaluation process.

ICICI Prudential Value Discovery Fund is mandated to invest at least 65% of its assets in equity & equity-related instruments while the balance can be in debt and cash. It also has the flexibility to invest some portion in offshore equities. The fund strictly sticks to its investment mandate and prefers to stay fully invested in equities.

ICICI Prudential Value Discovery Fund aims to maintain a well-diversified portfolio with the flexibility to invest across market caps and sectors. The fund maintains a large-cap bias, wherein it allocates around 65-75% of its assets. It also holds substantial allocation to mid-cap and small-cap stocks depending on the attractiveness of the valuation in each of these segments.

ICICI Prudential Value Discovery Fund's portfolio is usually diversified across 60 to 70 stocks. As of December 31, 2023, the fund held 68 domestic stocks along with a couple of overseas stocks. The top 10 holdings accounted for 52.3% of its total assets. Reliance Industries is currently the top equity holding in the fund's portfolio, followed by ICICI Bank, Bharti Airtel, Sun Pharma, and Infosys. ICICI Prudential Value Discovery Fund also holds some exposure to Rights. The fund has recorded a moderate turnover rate of 60-65% in recent months.

ICICI Prudential Value Discovery Fund currently holds an allocation of about 4.2% in overseas equities having invested in Viatris Inc. and British American Tobacco Plc., and ADRs/GDRs of Vodafone Group Plc.

In the last two years, ICICI Prudential Value Discovery Fund has benefited the most from its holdings in NTPC, Mahindra & Mahindra, Sun Pharma, ITC, TVS Motor Company, and Axis Bank that have together contributed over 30% to its absolute gains in the last two years. The fund has also gained from its exposure to Bharti Airtel, ONGC, Tata Motors - DVR Ordinary, The Great Eastern Shipping Company, ICICI Bank, and Hindalco Industries among many others.

ICICI Prudential Value Discovery Fund's portfolio is well-diversified across Cyclical, Defensive, and Sensitive sectors. Around 16.2% of IPVDF's assets are allocated to stocks in the Banking sector with another 7.8% in Finance. It also holds substantial exposure to Pharma, Petroleum, Infotech, Telecom, Auto, Power, Oil & Gas, and Consumption having allocation in the range of 3-10%. The top 5 sectors account for about 51.2% of its assets.

Is ICICI Pru Value Discovery Fund suitable for my investment goals and risk tolerance?

ICICI Prudential Value Discovery Fund's track record of identifying discounted sectors and picking quality undervalued stocks within those sectors has proven to be highly rewarding for its long-term investors. The investments in undervalued stocks provide a reasonable margin of safety which helps it minimise the downside risk during volatile and bearish market phases. Meanwhile, the focus on stocks with sound fundamentals enables it to do well during upside markets.

ICICI Prudential Value Discovery Fund emphasises on maintaining a well-diversified portfolio, encompassing across market caps and a wide range of sectors. Since undervalued stocks often require time to be discovered by the market, certain bets of the fund may not pay off immediately. Hence, the scheme may witness bouts of short-term underperformance.

The fund benefits from the expertise of its veteran fund manager, Mr Sankaran Naren, who is renowned for his contrarian investment approach and ability to identify value opportunities.

ICICI Prudential Value Discovery Fund is suitable for the defensive part of investors' portfolio, provided they have an investment horizon of at least 5 to 7 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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