Morningstar: Mutual Fund Guide

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Morningstar: Mutual Fund Guide
Morningstar: Mutual Fund Guide
Morningstar India - 03 July 2021

ICICI Prudential Short Term Fund

Investment Strategy

ICICI Prudential Short Term Fund’s key strengths are its experienced team and well executed investment process. Portfolio manager Manish Banthia has been managing the fund since 2009 and has 14 years of experience, having previously worked as a credit analyst and in the product function at ICICI Prudential. He counts on the support from his fixed-income team, one of the largest in the industry.

The fund employs an investment process with a focus on safety, liquidity, and returns. A comprehensive in-house investment approach is driven by a seasoned group of investment and risk-management professionals. The investment process integrates quantitative and fundamental analysis, following a disciplined and value-based approach. Top-down macro themes outline the overall strategy and provide a framework for their bottom-up security selection. The call on duration and interest-rate direction is determined by conducting a detailed analysis of various influencing factors such as inflation, gross domestic product growth, trade deficit, money supply, private sector and government borrowings, and fiscal/monetary policy. Before implementing any trades, final qualitative research and quantitative analysis are performed to understand and monitor risk in the portfolios.

Spread analysis is the key feature of this portfolio, which helps to determine the allocation to various segments such as corporate bonds, gilts, and cash. Execution has been good with 60%-65%, which reflects his medium-term view, while the remaining 35%-40% of the portfolio is managed tactically to take advantage of short-term rate movements. The credit profile of the fund is skewed to a superior credit quality and investments in lower-rated paper are restricted to companies where Bhantia has confidence in the management and financials.

SBI Bluechip Fund

Manager Biography And Fund Strategy

“SBI Bluechip Fund is led by an experienced stock-picker, backed by a stable process and an experienced team that has been trained in-house. Sohini Andani is an experienced portfolio manager and an astute stock-picker. Her extensive experience as an analyst and a research head stands out in her bottom-up approach to stock selection.

The AMC differentiates its funds based on absolute and relative-return frameworks. The Bluechip fund is a relative-return strategy focused on finding incremental fundamental change, positive market expectations, and relative valuations, measured by sales growth, EBITDA margins, and market share changes. They look at firms in terms of their visibility of growth and undertake company visits with a view to evaluate their business models. They have an active universe of stocks that are reviewed quarterly. While the filters for relative and absolute funds are clearly defined, stocks could fall into either framework, and the differentiation could blur. The fund has largely maintained an orientation towards growth stocks and is focused on long-term (three- to five-year) visibility. The team tends to stay away from momentum-based ideas and focuses on bottom-up stock-picking, which overlooks short-term market aberrations. This could lead to some short-term underperformance. We think their approach towards investing in companies with high ESG scores is a positive measure towards maintaining a “clean” portfolio. The in-house model portfolio forms the basis for stock picks and consists of the analyst team’s best ideas. Valuations are looked at on an absolute basis relative to the stock’s 10-year history. While they avoid event-based investing (possibility of a merger/acquisition), they tend to invest in IPOs.

Andani aims to invest in companies with a relatively high risk/reward ratio. She uses a benchmark-aware approach to investing, with an internal sector limit of 8% and a stock limit of 5% versus the index.”

ICICI Prudential Large & Midcap Fund

Manager Biography And Fund Strategy

“The two-decade-old fund, ICICI Prudential Top 100, adopted its new name in 2018 and has seen a gradual shift from being a pure large-cap fund to a large- and mid-cap. The fund is jointly managed by Sankaran Naren and Prakash Goel. Naren looks after the large-cap space, while Goel manages the mid-cap portion. The investment team is remarkably large and collaborative, comprising 12 research analysts and 11 portfolio managers (including head of research).

The managers follow a disciplined investment process with a mix of value and growth styles. With mostly a large-cap bias, they evaluate sectors from a top-down perspective, favouring those with attractive fundamentals and shifting away from ones where they think valuations are stretched. Within the sectors, they use relative valuation parameters to invest in stocks that are attractively priced relative to their growth prospects. Companies favoured by the investment process typically display quality management, strong financial strength, and growth prospects. The resulting investment style can be best characterised as having a slight growth tilt. Considering Naren’s style of investing, it isn’t uncommon for him to trade aggressively and buy/sell stocks from the same sector based on relative valuations. With the fund’s countercyclical approach, he looks to safer stocks during the turmoil, and as the sector outlook improves, he moves into riskier stocks. Given that Prakash Goel manages a significant allocation to mid-cap stocks, which are relatively risky, it could witness big declines in returns if not picked up carefully.

Taking cash calls is not a part of the investment strategy. With the increased exposure to mid-caps, the managers have been maintaining a diversified portfolio of 60-65 stocks.”

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