Should You Add ICICI Prudential Commodities Fund To Your Portfolio?
Oct 03, 2019

Author: Aditi Murkute

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ICICI Prudential Mutual Fund has launched a sectoral fund that will invest predominantly in stocks of companies that are a part of commodities and commodity-related sector. Currently, the equity markets are on a roller coaster ride. Despite the slew of announcements by Ms Nirmala Sitharaman to boost the economy and push consumption growth, the markets still have not been encouraging.

Most of the Indian economic growth is consumption-driven which is seen through the gross domestic product (GDP) rate. However, gross domestic product's recent figure pointed out to the slowest growth in six years due to weak demand and lower sales growth in key sectors such as the fast-moving consumer goods (FMCG) and automobile industries.

So, most of the FMCG companies have reported low earnings and dragged the markets down. In such times, however, the commodities sector did see some growth. Besides, commodities do act as hedge against inflation and investing in metals like gold do help in protection of capital against market volatility.

Thus, ICICI Prudential Mutual fund launched ICICI Prudential Commodities fund, that will allocate 80 to 100 per cent of its assets in stocks of companies that fall under the commodity sector and related activities. Metals, cement, paper, fertilizers and pesticides, energy, agriculture, textiles are some such sectors. Besides, the scheme will also make investments in companies not related to commodities and is permitted to invest in other instruments like debt, money market instruments, other derivatives, gold and gold ETFs.

Table 1: Details of ICICIPCF


Type
An open-ended equity scheme investing primarily in commodities and commodity related sectors. Category Thematic/Sector (investing in commodities and commodity related sector)
Investment Objective To generate long-term capital appreciation by creating a portfolio that is invested predominantly in Equity and Equity related securities of companies engaged in commodity and commodity related sectors.

However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.
Min. Investment Rs 5,000 - (plus in multiples of Re. 1) Face Value Rs 10 per unit
Plans  • Regular

• Direct
Options
  • Growth (Option A) *
  • Dividend (Option B)
    • Payout Dividend 
    • Reinvest Dividend*
* default option
Entry Load Nil Exit Load
  • 1% of applicable Net Asset Value - If the amount sought to be redeemed or switch out is invested for a period of up to twelve months from the date of allotment
  • Nil - If the amount, sought to be redeemed or switch out is invested for a period of more than twelve months from the date of allotment
Fund Manager Mr Sankaran Naren and Mr. Mittul Kalawadia and the overseas investments of the Scheme will be managed by Ms Priyanka Khandelwal Benchmark Index Nifty Commodities TRI
Issue Opens: September 25, 2019 Issue Closes: October 09, 2019
(Source: Scheme Information Document)


What is the Asset Allocation of ICICI Prudential Commodities Fund?

Under normal circumstances, the scheme's asset allocation or asset distribution weight will be as under.

Table 2: ICICIPCF's Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Maximum Minimum
Equity & Equity related instruments of companies engaged in commodity and commodity related sectors* 100 80 High
Other equity and equity related securities 20 0 High
Debt, Units of debt Mutual Fund schemes and Money market instruments. 20 0 Low to Medium
Units issued by REITs/ InvITs 10 0 Medium to High
Gold ETF/ other asset classes as may be permitted by SEBI from time to time (subject to applicable SEBI limits) 20 0 Medium to High
(Source: Scheme Information Document)
*The Scheme will invest in companies classified under ‘Commodities ‘as per Industry classification issued by AMFI from time to time. Examples of sectors classified under ‘Commodities ‘are as follows:
  1. Paper
  2. Cement and Cement Products,
  3. Metals (including, Ferrous Metals, Non- Ferrous Metals, Minerals & Mining etc.),
  4. Chemicals,
  5. Fertilizers and Pesticides, etc.
The Scheme may also take exposure to:
  • Equity derivative instruments, such as Index futures, stock futures, Index Options and Stock Options, upto 80% of net assets.
  • ADR/GDR/ Foreign Securities to the extent of 50% of net assets. Investment in ADR/GDR/Foreign Securities would be as per SEBI Circular dated September 26, 2007, as may be amended from time to time
  • Securitised debt upto 50% of debt portfolio
  • Stock lending up to 20% of net assets.
The Cumulative Gross Exposure across various asset classes will not exceed 100% of the Net Assets of the Scheme.
The Scheme will not engage in short selling.


What is the Investment Strategy of the Scheme?

The primary investment objective of the Scheme is to generate long-term capital appreciation by creating a portfolio that is invested predominantly in Equity and Equity related securities of companies engaged in commodity and commodity-related sectors.

The Scheme will invest in companies classified under 'Commodities 'as per Industry classification issued by AMFI from time to time. Examples of sectors classified under 'Commodities 'are as follows:

  1. Paper

  2. Cement and Cement Products,

  3. Metals (including, Ferrous Metals, Non- Ferrous Metals, Minerals & Mining etc.),

  4. Chemicals,

  5. Fertilizers and Pesticides, etc.

The scheme can also invest in equity & equity-related securities of other companies as stated in the asset allocation table.

The proportion of investment between equity and debt will be decided based on the view of the fund manager on anticipated movement in both equity as well as debt markets. The Fund manager can take aggressive calls on the market by going up to 100% in equity at any point of time or any other appropriate ratio depending upon his view.

The allocation between debt and equity will be decided based upon the prevailing market conditions, macroeconomic environment the performance of the corporate sector, the equity market and other considerations.

Who will manage the ICICI Prudential Commodities Fund?

The investments under the Scheme will be managed by Mr Sankaran Naren and Mr Mittul Kalawadia. The overseas investments of the Scheme will be managed by Ms Priyanka Khandelwal.

Mr Sankaran Naren is the Chief Investment Officer (CIO) and the Executive Director (ED) at the fund house. He is instrumental in overall investment strategy development, execution, and oversees the entire investment function.

He has to his credit a B. Tech degree from IIT Chennai and an MBA (in Finance) from IIM Kolkata.

Mr Naren has rich experience of around 27 years in almost all spectrum of the financial services industry ranging from investment banking, fund management, equity research, and stockbroking operations. He is a leading voice on the Indian economy/ equity markets across the investment and financial services fraternity.

At ICICI Prudential Mutual Fund, Mr Naren manages, ICICI Prudential Balanced Advantage Fund, ICICI Prudential Business Cycle Fund, ICICI Prudential Multi-Asset Fund, ICICI Prudential Equity Savings Fund, ICICI Prudential Exports and Services Fund, ICICI Prudential Growth Fund -Series 1, ICICI Prudential Growth Fund -Series 3, ICICI Prudential Smallcap Fund, ICICI Prudential Infrastructure Fund, ICICI Prudential R.I.G.H.T Fund, ICICI Prudential Technology Fund, ICICI Prudential Large & Mid Cap Fund, ICICI Prudential Value Fund - (Series 8, 9, 11, 12, 15, 16, 17, 18, 19, 20), ICICI Prudential Equity & Debt Fund, ICICI Prudential Long Term Wealth Enhancement Fund, ICICI Prudential Bharat Consumption Fund-(Series 1, 3, 4, 5), ICICI Prudential Multicap Fund, ICICI Prudential Long Term Equity Fund (Tax Saving), ICICI Prudential Asset Allocator Fund, ICICI Prudential Passive Strategy Fund, ICICI Prudential Thematic Advantage Fund and ICICI Prudential India Opportunities Fund among a few others.

Mr Mittul Kalawadia has a master's degree in commerce and is also a Chartered Accountant. He is associated with ICICI Prudential AMC since January 2006 and has gained experience of fund management/ investment analyst role by handling Business Planning & MIS, Equity Research and fund management.

Several other schemes managed by Mr Mittul include, ICICI Prudential Focused Equity Fund, ICICI Prudential Dividend Yield Equity Fund, ICICI Prudential Midcap Fund, ICICI Prudential Growth Fund - Series 2, ICICI Prudential Value Fund - Series 1, ICICI Prudential Value Fund - Series 10, ICICI Prudential India Recovery Fund - Series 1, ICICI Prudential India Recovery Fund - Series 2, ICICI Prudential India Recovery Fund - Series 3, ICICI Prudential Business Cycle Fund - Series 1, ICICI Prudential Business Cycle Fund - Series 3, ICICI Prudential Value Fund - Series 20.

Ms Priyanka Khandelwal, as mentioned earlier, will manage the overseas investments of the Scheme. She joined ICICI Prudential Mutual Fund in October 2014 and has to her credit a bachelor's degree in commerce (B. Com), plus is a Chartered Accountant and Company Secretary by qualification. At present, Ms Khandelwal also manages ICICI Prudential US Bluechip Equity Fund and ICICI Prudential Global Stable Equity Fund.

The outlook for ICICI Prudential Commodities Fund:

Do note that the commodity sector is prone to extreme volatility, the risk associated with commodities sector ranges from geopolitical to market performance depending on the commodities and how they fare in the global market.

Recent price fluctuations of oil and crude due to the drone attack on Saudi Arabia's Aramco shows the fragility of global supply chains. Besides some of the key factors that will influence Indian equities is GDP growth (which seems to have lost momentum of late), how international crude oil prices move, the inflation trajectory, impact of farm loan waiver and increased MSP (Minimum Support Price) on fiscal deficit.

Besides even global macroeconomic factors; the US-china trade war, Brexit, changing regulatory goalposts in e-commerce and teething problems that hamper smooth implementation of new laws can impact the equities.

If you observe the performance of the benchmark "Nifty Commodities TRI" the past one year and three-year returns have been negative at 8 % and 7% respectively.

Graph 1: Total index returns

Details of ICICIPCF
(Source: Nifty indices)


​Hence, the fund performance of the ICICI Prudential Commodities Fund relies on how well the fund managers and his team assess the scenarios and risk management measures they adopt. As it will not be an easy task for wealth creation and volatility will be obvious.

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This article first appeared on Certified Financial Guardian.  



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