Choosing the Best Focused Fund: HDFC Focused 30 Fund vs ICICI Pru Focused Equity Fund

In 2024, amid fluctuating markets and economic uncertainty, these funds have become an intriguing choice for investors willing to take on higher risks for the possibility of higher returns.

What Are Focused Mutual Funds?

Focused funds started to attract attention in the Indian mutual fund industry when SEBI, the regulatory authority, introduced guidelines in 2017 limiting these funds to a maximum of 30 stocks. This was aimed at providing investors with a concentrated portfolio option, where fund managers could focus on their best ideas without being spread too thin.

Focused funds in India are being shaped by market conditions marked by opportunities and uncertainties. Focused funds allow fund managers to concentrate their investments on companies they believe are undervalued or have strong potential to weather economic cycles. In volatile markets, such high-conviction picks may yield strong returns if the fund manager's predictions hold true.

As the focus shifts toward quality over quantity, investors are increasingly drawn to funds that prioritise businesses with solid fundamentals, effective management, and the ability to thrive despite challenges. The top holdings in focused funds often include companies with robust balance sheets and resilient revenue models.

[Read: Investing in High-Risk Mutual Funds: A Bold Approach]

Why Investors May Consider Focused Funds

While focused funds come with inherent risks due to their concentrated nature, they could be attractive for investors looking for a higher-risk, higher-reward investment vehicle.

• Potential for Superior Returns: Investors in focused funds typically look to benefit from the high conviction of fund managers, who can allocate larger portions of the portfolio to top picks they believe will outperform.

• Active Management and Flexibility: Fund managers can dynamically adjust allocations to sectors and companies they view as promising based on market insights, adding agility that can be advantageous in volatile market conditions.

• Aligned with Long-term Growth: Investors with a horizon of 5-10 years or more can benefit from the compounding effect if the fund performs well, making focused funds a suitable option for those who don't need immediate liquidity and are willing to stay invested through market cycles.

• Tax Efficiency in India:  Focused funds in India fall under equity taxation norms, making them relatively tax-efficient for long-term investors. Gains from holding focused equity funds for more than a year qualify for long-term capital gains tax benefits.

• Diversified Sector Exposure with a High-conviction Twist:  While focused funds invest in a limited number of stocks, they often diversify across sectors, balancing the potential for sector-specific returns with overall market performance. This allows investors to access a blend of industries while still relying on a concentrated portfolio approach.

In recent years, investors have increasingly sought out focused funds, attracted by their high-conviction, concentrated portfolios that aim to outperform broader markets. This article compares two popular top-performing Focused Funds - HDFC Focused 30 Fund and ICICI Pru Focused Equity Fund - to aid you in selecting the best-focused fund for your portfolio.

# - HDFC Focused 30 Fund

HDFC Focused 30 Fund belongs to HDFC Mutual Fund, one of India's largest and most reputed AMCs. It is a focused equity mutual fund scheme that aims to provide long-term capital appreciation by investing in a concentrated portfolio of up to 30 high-conviction stocks across market capitalisation (large-cap, mid-cap, and small-cap).

Launched in September 2004, the scheme currently holds an AUM of Rs 14,968.50 crores (as of Sept 30, 2024) and is benchmarked against Nifty 500 - TRI. The fund is known for its flexibility to shift allocations based on market conditions, aiming to capitalise on sector-specific growth trends.

# - ICICI Pru Focused Equity Fund

ICICI Prudential Focused Equity Fund is a popular focused equity mutual fund in India, managed by ICICI Prudential Mutual Fund. It typically invests in a concentrated portfolio, holding a limited number of stocks to create a high-conviction portfolio aimed at generating significant long-term growth.

Launched in May 2009, the scheme currently holds an AUM of Rs 9,867.12 crores (as of Sept 30, 2024). Being a focused fund, it restricts its investments to a maximum of 30 stocks across market caps (large, mid, and small-cap), allowing the fund manager to concentrate on high-conviction stocks. ICICI Pru Focused Equity Fund is benchmarked against Nifty 500 - TRI.

To know in detail about this fund you may consider reading - ICICI Pru Focused Equity Fund: Demonstrating Remarkable Growth through a Focused Approach

Investment Style and Philosophy:

HDFC Focused 30 Fund adopts a bottom-up approach, focusing on companies with robust fundamentals and growth potential. It typically holds companies with competitive advantages, efficient management, and scalable business models. The portfolio aims to deliver returns by allocating significant weights to high-conviction picks.

Being a focused fund, it follows a high-concentration strategy, which allows the fund manager to build sizable positions in select companies they believe have significant growth potential.

ICICI Pru Focused Equity Fund combines a top-down sectoral analysis with a bottom-up stock selection approach. It emphasises companies with robust financials, effective management, and high growth potential. The fund manager uses a high-conviction approach, typically holding a mix of large-cap, mid-cap, and select small-cap stocks.

Over the years, ICICI Pru Focused Equity Fund has demonstrated competitive returns, although being a high-conviction fund, it may experience higher volatility than more diversified funds.

[Read: The Ultimate Guide to the Best SIP Plans for 2025]

• Performance Comparison: Rolling Returns

  Scheme Name	Absolute (%)	CAGR (%)
  	1 year	3 Years	5 Years	7 Years	10 Years
  HDFC Focused 30 Fund (G)-Direct Plan	39.96	29.34	22.47	16.54	16.66
  ICICI Pru Focused Equity Fund (G)-Direct Plan	42.88	24.20	23.08	18.00	16.60
  Focused Funds - Category Average	35.08	19.13	19.69	15.97	16.83
  Benchmark - Nifty 500 TRI	34.60	18.87	19.21	16.02	15.53

  Data as of October 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Historical data shows that both funds have delivered substantial returns across most timeframes, outperforming the category average and benchmark returns.

  HDFC Focused 30 Fund boasts a commendable track record over the long term, consistently delivering competitive returns to investors. ICICI Pru Focused Equity Fund shows a substantial performance compared to it's peers.

  Over the 3-year period, HDFC Focused 30 Fund delivered a 29.34% CAGR, significantly outperforming the category average of 19.13% and the benchmark's 18.87%. ICICI Pru Focused Equity Fund, while also performing well with a 24.20% CAGR, trailed slightly behind HDFC's return in this timeframe. This indicates HDFC Focused 30 Fund's ability to generate superior returns over the medium term, potentially due to its stock selection and allocation strategies in high-growth sectors.

  In the 5-year period, ICICI Pru Focused Equity Fund shows a slight edge over HDFC Focused 30 Fund, with a CAGR of 23.08% compared to HDFC's 22.47%. Both funds, however, continue to outperform the category average (19.69%) and the Nifty 500 TRI benchmark (19.21%), illustrating their potential for generating higher-than-average returns over a longer horizon. This outperformance highlights the effectiveness of focused strategies when managed with a high degree of conviction and selective stock-picking.

  Over the longer term, the returns of both funds align more closely, with HDFC Focused 30 Fund at a CAGR of 16.66% and ICICI Pru Focused Equity Fund at 16.60%. These returns are competitive with the focused fund category average of 16.83% and significantly above the Nifty 500 TRI benchmark at 15.53%.

  Overall, while both funds show commendable returns, ICICI Pru Focused Equity Fund's performance has been particularly strong over the longer time frames, with HDFC Focused 30 Fund delivering a standout performance in the medium term.

  While both the scheme's historical performance is encouraging, it's crucial to remember that past performance doesn't guarantee future results. Conduct thorough research and consider your risk tolerance and investment goals before making investment decisions.

• Portfolio Composition: Asset Allocation of Schemes

  Both HDFC Focused 30 Fund and ICICI Pru Focused Equity Fund are popular amongst investors in the Focused funds segment, but their asset allocation strategies differ slightly.

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  HDFC Focused 30 Fund	65.72	2.50	14.71
  ICICI Pru Focused Equity Fund	72.90	20.60	1.80

  Data as of October 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both funds are primarily invested in large-cap companies. The HDFC Focused 30 Fund has a dominant allocation in large-cap stocks, standing at 65.72%, indicating a preference for established, high-capitalisation companies that provide stability. Additionally, it has a small but notable allocation to mid-caps at 2.50% and a more significant exposure to small-cap stocks at 14.71%, suggesting an interest in capturing growth from smaller, potentially high-growth companies alongside its large-cap focus.

  In contrast, the ICICI Pru Focused Equity Fund holds a higher large-cap allocation at 72.90%, indicating a slightly more conservative approach to stability and capital preservation through blue-chip investments. However, this fund has a substantial mid-cap exposure of 20.60%, positioning it to benefit from mid-sized companies that have growth potential but with a moderate risk profile. Its small-cap allocation is minimal at 1.80%, reflecting a lower risk appetite for smaller, more volatile companies.

  The difference in mid- and small-cap exposure between the two funds highlights contrasting risk and growth strategies. Overall, for investors, the HDFC Focused 30 Fund may suit investors looking for a large-cap-dominated portfolio with a secondary, more aggressive stance on small-cap growth. Meanwhile, ICICI Pru Focused Equity Fund may appeal to investors who want the core stability of large caps but are also interested in mid-cap companies for growth potential.

  Both funds follow distinct asset allocation strategies to align with their investment philosophies and target investor profiles.

  [Read: Best Mutual Funds to Invest Now]

• Market Volatility: Risk Profile of Schemes

  The equity market experiences constant ups and downs, and focused funds are particularly susceptible to these fluctuations, given the concentration risk they carry.

  Risk Ratio (3 years)	HDFC Focused 30 Fund	ICICI Pru Focused Equity Fund
  Standard Deviation	12.84	13.72
  Sharpe Ratio	0.39	0.30
  Sortino Ratio	0.86	0.63

  Data as of October 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  ICICI Pru Focused Equity Fund appears to be riskier, with a higher Standard Deviation (13.72) compared to HDFC Focused 30 Fund (12.84). This means that ICICI Pru Focused Equity Fund experiences relatively larger fluctuations in returns, suggesting a higher risk level in terms of market swings. Investors in ICICI Pru's scheme may encounter a bumpier ride, especially during periods of market volatility, compared to those in HDFC Focused 30 Fund.

  HDFC Focused 30 Fund has a Sharpe Ratio of 0.39, whereas ICICI Pru Focused Equity Fund's is slightly lower at 0.30. The Sharpe Ratio measures returns in relation to risk, so a higher ratio indicates that HDFC Focused 30 Fund delivers better returns for each unit of risk taken. This metric suggests that, on a relative basis, HDFC Focused 30 Fund offers a more favourable risk-return balance for investors seeking efficiency in risk management alongside potential returns.

  HDFC Focused 30 Fund has a Sortino Ratio of 0.86, while ICICI Pru Focused Equity Fund's is 0.63. Since the Sortino Ratio penalises negative deviations from the expected return more heavily than the Sharpe Ratio, this measure indicates that HDFC's fund is better at minimising downside risk. Investors concerned with avoiding steep drops in value might find HDFC Focused 30 Fund more suitable as it appears more resilient to downturns.

• Top Holdings of the Focused Funds:

  HDFC Focused 30 Fund		ICICI Pru Focused Equity Fund
  Company	% Assets	Company	% Assets
  HDFC Bank Ltd.	9.51	ICICI Bank Ltd.	8.57
  ICICI Bank Ltd.	9.50	HDFC Bank Ltd.	6.77
  Axis Bank Ltd.	8.52	Axis Bank Ltd.	6.04
  SBI Life Insurance Company Ltd.	4.55	Sun Pharmaceutical Industries Ltd.	5.98
  Maruti Suzuki India Ltd.	4.44	Larsen & Toubro Ltd.	4.22
  Cipla Ltd.	4.15	Ultratech Cement Ltd.	3.79
  Kotak Mahindra Bank Ltd.	3.93	Dabur India Ltd.	3.41
  HCL Technologies Ltd.	3.78	Avenue Supermarts Ltd.	3.36
  Bharti Airtel Ltd.	3.77	NTPC Ltd.	3.31
  Piramal Pharma Ltd.	3.77	Info Edge (India) Ltd.	3.31

  Data as of October 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  The HDFC Focused 30 Fund and ICICI Prudential Focused Equity Fund both adopt a concentrated investment strategy, focusing on a select number of high-conviction stocks. However, their top holdings and sector allocation reveal different strategic emphases.

  The HDFC Focused 30 Fund holds its highest exposure in HDFC Bank Ltd. (9.51%) and ICICI Bank Ltd. (9.50%), reflecting a strong preference for the financial sector. In comparison, the ICICI Prudential Focused Equity Fund also emphasises financials, with ICICI Bank Ltd. (8.57%) and HDFC Bank Ltd. (6.77%) as its top holdings.

  Axis Bank Ltd., SBI Life Insurance, and Kotak Mahindra Bank are also prominent in HDFC's portfolio, indicating the fund's significant tilt toward banking and financial services as key growth drivers. However, the allocation across ICICI's top holdings appears more diversified, with notable investments in Sun Pharmaceutical Industries Ltd. (5.98%) and Larsen & Toubro Ltd. (4.22%), suggesting a more balanced approach between financial services and other sectors such as healthcare and infrastructure.

  While both funds favour financial stocks, ICICI Prudential Focused Equity Fund's diversified picks hint at its strategy to balance growth with stability across different economic sectors. HDFC Focused 30 Fund leans heavily on financials and consumer-facing sectors, with a defensive touch from pharma holdings, while ICICI Prudential Focused Equity Fund provides a more balanced mix across sectors, including infrastructure, healthcare, and utilities, potentially enhancing its ability to navigate varied economic cycles.

  This difference in sector allocation could influence performance outcomes based on market conditions, making each fund appealing to different investor preferences.

• Expense Ratio of the Schemes

  When comparing focused funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of HDFC Focused 30 Fund vs ICICI Pru Focused Equity Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  HDFC Focused 30 Fund	0.53%	1.67%
  ICICI Pru Focused Equity Fund	0.59%	1.74%

  Data as of October 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  HDFC Focused 30 Fund offers a lower expense ratio in both the regular and direct plan, indicating higher net returns for investors compared to ICICI Pru Focused Equity Fund, and it also offers a cost advantage to investors. There is a slight difference in the expense ratio under the regular plan for both schemes.

  Remember, a lower Expense Ratio translates to potentially higher returns over time. Over the long term, even a seemingly small difference in Expense Ratio could accumulate and significantly impact your returns.

• Suitability of Investors to the Schemes:

  HDFC Focused 30 Fund is aggressive, with a flexible mandate to invest across market caps (large, mid, and small-caps). It focuses on high-conviction bets, often with a higher concentration in mid and small-cap stocks, which can lead to higher returns and increased volatility. This fund may appeal to investors who are willing to accept more risk in exchange for higher growth potential.

  ICICI Pru Focused Equity is a good option for investors looking for a disciplined approach to equity investing with a focus on large-cap and mid-cap stocks. The fund's portfolio is built around high-quality companies with strong fundamentals, aiming to generate steady growth over the long term. It may appeal to those who prefer a balanced approach between growth potential and stability.

  For investors who prefer a more aggressive and flexible approach, HDFC's Focused Fund could be a better fit. Conversely, ICICI's Focused Fund might be preferable for investors focusing on a concentrated portfolio of strong, fundamentally sound companies.

  Both schemes are suitable for investors willing to accept moderate to high volatility in exchange for higher potential returns. And for the ones with a long-term investment horizon of at least 5-7 years or more.

To summarise...

With their ability to generate superior returns by focusing on a limited number of carefully selected stocks, focused funds could be a powerful tool for long-term wealth creation. However, one must be aware of the concentrated nature of these funds and invest accordingly.

While these funds may not be suitable for every investor, those with a higher risk appetite and an interest in selective, high-quality stock picking may find them to be an excellent addition to their investment strategy. In the current investment landscape, it is essential to stay informed and approach focused funds with careful consideration.

Ultimately, the best choice depends on your individual risk appetite and investment goals. Consulting a SEBI-registered financial advisor could be invaluable to ensure optimal alignment with your specific investment objectives. Remember, a well-diversified portfolio across market caps/sectors and asset classes may help manage overall risk while potentially benefiting from its growth potential.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

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.