ICICI Prudential Focused Equity Fund: Identifying Stocks with Higher Growth Potential

ICICI Prudential Focused Equity Fund is a lesser-known Focused Fund that has picked up its performance in the last couple of years without exposing the portfolio to high risk. The fund looks to identify high conviction ideas across market caps and sectors but with an eye on valuation.

Past performance is not an indicator of future returns
Data as on August 24, 2022
(Source: ACE MF)

ICICI Pru Focused Equity Fund has shown a turnaround performance and has stood among the top performers in the Focused fund category. While the fund has occasionally witnessed bouts of underperformance, its long-term performance is reasonable. Notably, ICICI Pru Focused Equity Fund has recorded superior growth in the last couple of years and has managed to outpace the benchmark by a noticeable margin. In the last 1-year and 3-year period, ICICI Pru Focused Equity Fund has outpaced the category average by around a percentage point. Moreover, the fund currently stands among the top performers in the category across time frames.

The volatility (standard deviation) of ICICI Pru Focused Equity Fund is the lowest in the Focused fund category and much lower than the benchmark. In addition, its Sharpe (0.24), a measure of risk-adjusted return is currently among the best in the category though lower than the benchmark.

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Investment strategy of ICICI Pru Focused Equity Fund

Categorised under Focused Funds, ICICI Pru Focused Equity Fund is mandated to invest in a concentrated portfolio of up to 30 equity and equity-related securities. The fund has the flexibility to follow multi-cap approach to invest across market caps but holds a large-cap bias and aims to identify stocks that have the potential to outperform over medium to long term. It follows a bottom-up approach to select fundamentally sound stocks based on parameters such as Discounted cash flow, Return on investment, Return on invested capital relative to weighted average cost of capital, Price/Book Value, Earnings yield, etc.

ICICI Pru Focused Equity Fund focuses on investing in companies that have robust business financials, quality management, above-average profitability, and sustained competitive advantages. It also discerns value to assess the growth potential of the stock. The fund is sector agnostic and maintains an overweight stance on select high conviction themes/sectors that are expected to outperform in the ongoing economic cycle.

Being a Focused Fund, ICICI Pru Focused Equity Fund holds a maximum of 30 stocks in its portfolio at any point of time. As of July 31, 2022, ICICI Pru Focused Equity Fund held 27 stocks in its portfolio diversified across sectors. The fund held its top exposure in large-cap names like ICICI Bank, HDFC Bank, Reliance Industries, Mahindra & Mahindra, and Infosys. The top 10 holdings in the fund's portfolio together account for about 54.7% of the total assets. The fund usually holds stocks with a long-term view and accordingly, it had a low turnover ratio of 35-65% in the last one year.

In the last one year, ICICI Pru Focused Equity Fund benefitted from its holdings in Mahindra & Mahindra, TVS Motor Company, Brigade Enterprises, ICICI Bank, Bharti Airtel, and Sun Pharma, among others.

ICICI Pru Focused Equity Fund's portfolio is heavily skewed towards Financials, with Banks carrying around 25.7% weightage in the portfolio, with another 13% in Finance stocks. It also holds significant exposure to Infotech followed by Auto, Petroleum, Pharma, Construction, Engineering, and Telecom, among others. About 89% of its portfolio is spread across top 10 sectors. Although ICICI Pru Focused Equity Fund's portfolio is biased towards cyclicals, it has significant exposure to defensive and sensitive sectors as well.

Suitability

ICICI Pru Focused Equity Fund has shown significant improvement in its performance in the last couple of years and now stands among the top performers in the focused fund category. Meanwhile, its performance has been reasonable compared to the benchmark. In the past too ICICI Pru Focused Equity Fund has outpaced the benchmark and many of its peers by a wide margin during certain periods, resulting in higher returns for investors in the scheme. ICICI Pru Focused Equity Fund has achieved this without exposing the portfolio to high volatility and has rewarded investors with superior risk-adjusted returns.

With a portfolio that has a predominant large-cap bias ICICI Pru Focused Equity Fund has the potential to generate stable returns without exposing investors to high risk. However, its performance may be in sharp contrast to its Focused Fund peers that hold significant exposure to stocks in the mid-cap and small-cap segments. With a fairly diversified portfolio, robust investment processes, and a preference for safety, ICICI Pru Focused Equity Fund seems well-placed to ride the market across highs and lows and generate superior returns over the long run.

ICICI Pru Focused Equity Fund is suitable for investors looking to invest in a well-managed fund focusing on high-conviction ideas with a long-term investment horizon.

Warm Regards,
Divya Grover
Research Analyst

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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.

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