ICICI Pru Value Discovery Fund: Exploring Revival Opportunities

Mar 19, 2020

The Indian equity markets have witnessed massive selloff in the last few days. Persistent selling has been due to fears of global recession as coronavirus continues to spread rapidly, taking the markets to its retrograde point from 3 years ago.

Some experts believe that the impact of coronavirus on the economy could be even worse than the global financial crisis of 2008.

Amid these concerns, I believe that the current market scenario provides an excellent opportunity for value fund managers to pick quality stocks across market capitalisation.

It is well known that value funds have witnessed prolonged underperformance due to expensive market and weak corporate earnings, which favoured growth stocks. But in the current market crash, value funds may provide a better margin of safety and act as a good portfolio diversifier because growth stocks too have come under pressure.

ICICI Pru Value Discovey Fund (IPVDF) is one such true to style value fund that was launched in August 2004. It is managed by Mr Mrinal Singh since February 2011.

Graph 1: Growth of Rs 10,000 if invested in ICICI Pru Value Discovery Fund 5 years ago

IPVDF rewarded its investors well in the past with superior returns. However, its poor returns over the past few years have plunged its 5-year compounded growth rate into a negative territory. Notably, most value funds have underperformed during this period due to weak corporate earnings. If you had invested Rs 10,000 in IPVDF five years back on March 18, 2015, its value would have dropped to Rs 9,404 now, while a simultaneous investment in S&P BSE 500 - TRI would now be valued at Rs 10,469.


Graph 1: Growth of Rs 10,000 if invested in ICICI Pru Value Discovery Fund 5 years ago
Data as on March 18, 2020
(Source: ACE MF)

Table: ICICI Pru Value Discovery Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Tata Equity P/E Fund 4,567 1.50 2.11 12.09 13.12 16.15 15.07 -0.03
JM Value Fund 116 5.73 2.12 11.93 13.20 14.75 16.14 0.01
Nippon India Value Fund 2,948 3.72 3.32 10.99 11.01 13.13 16.69 0.01
HDFC Capital Builder Value Fund 4,010 -0.88 2.79 10.74 10.95 13.87 15.44 -0.04
IDFC Sterling Value Fund 2,984 -6.62 -2.76 10.05 10.50 13.17 18.70 -0.03
UTI Value Opp Fund 4,403 5.03 5.67 9.64 7.60 11.40 13.57 0.02
L&T India Value Fund 7,041 0.89 -0.01 9.63 13.50 17.48 16.01 -0.04
Templeton India Value Fund 439 -3.76 -2.64 6.96 8.31 10.09 16.83 -0.11
Quantum Long Term Equity Value Fund 787 0.27 1.88 6.88 8.44 12.49 12.69 -0.15
ICICI Pru Value Discovery Fund 13,446 -0.54 1.65 6.42 9.40 14.51 12.83 -0.12
S&P BSE 500 - TRI 4.76 5.32 11.54 9.86 12.37 14.63 0.01
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on March 18, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

IPVDF underperformed S&P BSE 500 - TRI index across 1-year, 2-year, and 3-year rolling return basis, though it outperformed the category average on 2-year and 3-year rolling return basis.

Over the longer time horizon of a 5-year rolling period, it delivered returns nearly in line with the index while on a 7-year rolling period it outperformed the index by over 2 percentage points.

In terms of risk-return parameters, IPVDF registered lower volatility as compared to S&P BSE 500 - TRI index as well as the category average. However, its risk-adjusted returns as denoted by Sharpe were lower than the index and many category peers.

Investment strategy

Classified as value fund, IPVDF is mandated to invest at least 65% of its assets in equity and equity related instruments following the value-style approach. The fund strictly sticks to its investment mandate and prefers to stay fully invested in equities. It has the flexibility to invest across market capitalisation. However, the fund maintains a large cap bias along with a significant exposure to mid caps. The fund adopts a "Bottom-up" strategy to identify and select undervalued stocks based on an evaluation of several parameters such as earnings, asset value, free cash flow, dividend yield, management quality, business competitiveness, etc.

Graph 2: Top portfolio holdings in ICICI Pru Value Discovery Fund

Graph 2: Top portfolio holdings in ICICI Pru Value Discovery Fund Graph 2: Top portfolio holdings in ICICI Pru Value Discovery Fund
Holding (in %) as on February 29, 2020
(Source: ACE MF)

IPVDF holds a fairly-diversified portfolio of stocks and sectors. As on February 29, 2020, the fund held 44 stocks in its portfolio with the top 10 stocks accounting for around 53.7% of its assets. Infosys has the highest stock allocation, while it has prominent holdings in Sun Pharma, Bharti Airtel, NTPC, and Mahindra & Mahindra. Notably, the top 10 stocks include a healthy mix of various sectors.

Bharti Airtel and PI Industries were the major contributors to the fund's gain in the last one year, though it lost significant value from its holdings in Sun Pharma, ITC, Mahindra & Mahindra, Indian Oil Corp, Wipro, Exide Industries, among others.

In terms of sectors, the fund has the highest exposure to Infotech were it has allocated 18.4% of its portfolio. Pharma, Power, Telecom, Auto, Transportation, Finance and Consumption are the other major sectoral holdings.

Suitability of ICICI Pru Value Discovery Fund

IPVDF has a track-record of identifying discounted sectors and picking quality undervalued stocks which may turn out to be rewarding in the long run. The fund has delivered superior returns in the past at a reasonable level of risk. Though the fund maintains a fairly diversified portfolio, it takes time for undervalued stocks to be discovered by the market.

Hence, certain bets of the fund may not pay off immediately and the scheme may witness bouts of short-term underperformance. This makes IPVDF suitable for investors with high risk appetite and an investment horizon of at least 5 years.

 

Warm Regards,
Divya Grover
Research Analyst

 

Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

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.

 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
 
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Click here to read PersonalFN's Mutual Fund Rating Methodology

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021.

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013




Add Comments