ICICI Pru Multi Cap Fund: Displaying Encouraging Performance Through Prudent Investment Process

ICICI Pru Multi Cap Fund is a Multi Cap Fund that has delivered decent risk-adjusted returns over the long term by following a blend of growth and value investing strategies to select high-conviction stocks across market capitalisations.

ICICI Prudential Multicap Fund is one of the most popular schemes in the Multi Cap Fund category, holding the distinction of being the longest-running scheme since its launch in October 1994. The fund has the flexibility to select investments from a broad universe of stocks without any sector bias, which enhances its potential to generate high alpha over the long run.

ICICI Prudential Multicap Fund has experienced various market cycles during its long journey and has managed to achieve a CAGR of about 15.8% since its inception. However, the past performance may not be directly comparable due to a change in its investment strategy around three years ago.

Until late 2020, ICICI Prudential Multicap Fund dynamically allocated assets across market caps without any limitations. After SEBI introduced a new definition for Multi Cap Funds in early 2020, ICICI Prudential Multicap Fund adjusted its portfolio, reducing large-cap exposure and increasing mid and small-cap exposure. Notably, it was one of the few schemes that did not transition to the newly introduced Flexi Cap Fund category after SEBI's new definition.

Over the past 5 years, ICICI Prudential Multicap Fund has generated a CAGR of approximately 24.3%, outperforming the broader Nifty 500 - TRI index's 22.3% CAGR. An investment of Rs 10,000 in ICICI Prudential Multicap Fund five years ago would now be valued at Rs 29,679 compared to Rs 27,432 if invested in the Nifty 500 - TRI index. Supported by a prudent investment process and a stable fund house, the fund has shown improved performance in recent years. Additionally, it is managed by veteran fund manager Mr Sankaran Naren, known for his high-conviction value-oriented and contra bets, which boosts confidence in the fund's long-term performance.

In the past, ICICI Prudential Multicap Fund has struggled with its performance on multiple occasions, often trailing the benchmark and the category average. This has impacted its return track record over the medium to long term. Over the long-term periods of 5 and 7 years, on a rolling return basis, the fund has outperformed the benchmark by about a percentage point but has underperformed the category average by 2-2.5 percentage points.

However, significant improvements in performance over the last couple of years has made ICICI Prudential Multicap Fund's near-term track record more encouraging. On a rolling return basis, in the last 1-year and 2-year periods, the fund has generated a lead of about 6-9 percentage points over the benchmark and has also outpaced many of its peers.

On risk-return parameters, ICICI Prudential Multicap Fund has experienced lower volatility (13.85%) compared to the category average and the benchmark. The fund's recent notable performance has improved its risk-adjusted returns. Its Sharpe ratio (0.36) is significantly ahead of the category average and the benchmark, providing investors with satisfactory risk-adjusted returns.

What is the investment strategy of ICICI Pru Multi Cap Fund?

Being a Multi Cap Fund, ICICI Prudential Multicap Fund's investment universe comprises a mix of large-cap, mid-cap, and small-cap stocks based on the fund manager's view on market valuations. The fund has the mandate to invest a minimum of 75% of its assets in equity and equity-related instruments, allocating a minimum of 25% in each segment viz. large-cap, mid-cap, and small-cap. It aims to invest in high-conviction quality stocks. The fund is benchmark and sector-agnostic and uses a combination of the 'top-down' and 'bottom-up' approach for stock selection.

ICICI Prudential Multicap Fund uses the 'top-down' approach to identify the macro-economic conditions and underlying trends. This process is followed by the 'bottom-up' approach which involves selecting stocks with good growth prospects, low leverage, good corporate governance, robust financials, and good cash flow management. While ICICI Prudential Multicap Fund holds many of its stocks with a long-term view, it also takes a few active calls in attractive stocks and sectors.

ICICI Prudential Multicap Fund typically holds a highly-diversified portfolio of around 90-110 stocks. As of June 30, 2024, the fund held 112 stocks in the portfolio with the top-10 stocks accounting for around 27.3% of its assets. ICICI Bank has been the fund's top stock with a 5% plus allocation for quite some time now. All other stock holdings in the portfolio usually have an allocation of 4% or less. The other core holdings in the portfolio include large-cap names like Sun Pharma, Infosys, Reliance Industries, and HDFC Bank. Notably, the fund has a long tail of nearly 90 stocks having an allocation of less than 1% in each. The fund's portfolio turnover has ranged between 80-95% in the last one year, signifying occasional churning of the portfolio.

In the last two years, ICICI Prudential Multicap Fund has gained immensely from its holding in TVS Motor Company, ICICI Bank, The Phoenix Mills, Cummins India, Bharti Airtel, Cholamandalam Financial Holdings, and Cyient, among others. It also benefitted from its exposure to The Indian Hotels Company, L&T, The Federal Bank, HCL Technologies, HDFC Bank, CESC, JK Lakshmi Cement, Avenue Supermarts, and Sun Pharma, among others. Meanwhile, it booked profit in NHPC, Ambuja Cements, Schaeffler India, Apollo Hospitals Enterprises, Nippon Life India Asset Management, Teamlease Services, Interglobe Aviation, among others.

ICICI Prudential Multicap Fund's portfolio is diversified across 25 sectors, comprising an optimal mix of cyclicals and defensives. Notably, it has avoided taking concentrated exposure in any particular sector. The fund has higher allocation to the Banking & Finance sector that forms around 19.5% of its assets. The other core sectors in its portfolio include Engineering, Infotech, Pharma, Consumption, and Petroleum. The top 10 sectors collectively account for 67.3% of its assets. The fund also holds diversification to Auto, Telecom, Oil & Gas, Power, Media & Entertainment, Cement, and Retail, among others.

Is ICICI Pru Multi Cap Fund suitable for my investment goals and risk tolerance?

ICICI Prudential Multicap Fund has a history of outperforming the Nifty 500 - TRI index on numerous occasions. Despite some periods of underperformance relative to its peers, the fund's stringent investment process and the stability of its management team have driven strong growth over the past couple of years. The fund avoids concentrated bets on specific stocks and sectors, focusing instead on creating a diverse portfolio.

Following an active investment approach, ICICI Prudential Multicap Fund frequently churns a substantial portion of its portfolio while demonstrating patience with select high-quality stocks and sectoral bets, which can ultimately benefit investors. Managed by an experienced fund manager and supported by a process-driven fund house, the fund has the potential to generate reasonable risk-adjusted returns over the long run.

ICICI Prudential Multicap Fund is suitable for investors looking for high-conviction and value-oriented scheme investing across market caps and having an investment horizon of at least 5-7 years.

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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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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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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