ICICI Pru vs Edelweiss Large Cap Fund: Which One Offers Stability Amid Market Volatility?

While mid and small-cap stocks have been witnessing a sharp decline for the past few months, after their extended rally. Despite the correction, inflows into mid and small-cap stocks and their valuations remain high, as many investors continue investing in expectation of high rewards even at the risk of elevated volatility.

The current market turbulence has raised concerns amongst investors. In such uncertain times, the segment that could offer a level of stability to the portfolio is large-cap stocks - companies that have stood the test of time, weathered multiple market cycles, and continued to deliver stable growth.

Large-cap mutual funds that invest in well-established blue-chip companies do offer a much-needed cushion to investors in these volatile markets. Unlike mid and small-cap stocks that are highly sensitive to price fluctuations, large-cap stocks do not react much to drastic price swings. This is due to the strong balance sheets, consistent cash flows and leadership positions that large-cap stocks hold.

With global macroeconomic risks and domestic uncertainties persisting, investors are prioritizing funds that can provide a smoother ride through market fluctuations.

Large-cap funds do offer a balanced approach to investing combining the potential for long-term wealth creation with the prudent approach of investing in market leaders. As investors reassess their risk appetite in light of recent market trends, blue-chip stocks are regaining favour, ensuring that large-cap mutual funds remain a vital component of a well-diversified portfolio.

[Read: Should You Stay Invested in Mutual Funds]

In this context, two of the top-performing large-cap funds that have gained substantial returns across various market phases are the ICICI Pru Bluechip Fund and Edelweiss Large Cap Fund.

We have compared these two funds, analysing their performance, strategies, and suitability for investors looking to capitalise on opportunities within the contra space amidst today's uncertain market environment.

# - ICICI Pru Bluechip Fund

Launched in May 2008, the scheme currently holds a strong AUM of Rs 63,296.96 crores. ICICI Pru Bluechip Fund is managed by the ICICI Prudential Mutual Fund house, one of India's oldest and most trusted asset management companies.

The fund has built a reputation for its solid returns and consistent performance. It primarily invests in large-cap stocks and focuses on high-quality large-cap companies with consistent earnings growth and leadership positions in their respective sector. The fund managers actively monitor macroeconomic trends, sectoral shifts, and company-specific fundamentals to make allocation decisions, ensuring a well-diversified portfolio of blue-chip stocks.

# - Edelweiss Large Cap Fund

Edelweiss Large Cap Fund is another popular offering under large-cap funds. Similar to the ICICI Pru Bluechip Fund, seeks opportunities in blue-chip stocks with strong potential for future growth. However, Edelweiss Large Cap Fund focuses more on identifying stocks with stable earnings, competitive advantages and strong corporate governance.

It adopts a research-driven stock selection process, ensuring that majorly high-quality businesses with slight exposure to emerging ones (future large caps) make it to the portfolio. The scheme aims for a steady investment approach, reducing excessive volatility while benefiting from the long-term compounding potential of large-cap stocks.

Performance Comparison: Rolling Returns

As we can see, across multiple timeframes ICICI Pru Bluechip Fund and Edelweiss Large Cap Fund have both delivered impressive returns, outperforming their benchmark.

Looking at the 3-year and 5-year CAGR, ICICI Pru Bluechip Fund has demonstrated superior performance, generating 19.94% and 20.09% CAGR, respectively, compared to Edelweiss's 17.90% and 19.27% CAGR. This suggests that while Edelweiss Large Cap Fund has shown strong recent momentum, ICICI Pru Bluechip Fund has maintained better long-term consistency.

Over the longer period, the performance gap between the two funds has narrowed significantly, with ICICI Pru Bluechip Fund delivering a 16.30% CAGR, almost at par with Edelweiss Large Cap Fund's 16.27% CAGR. Both funds have outperformed the category average and the S&P BSE 100 benchmark across all timeframes, reinforcing their effectiveness in adopting a contrarian investment strategy.

This makes both funds compelling choices, depending on an investor's investment horizon and risk appetite.

[Read: Why It Makes Sense to Take the SIP Route Now Amidst a Volatile Equity Market]

Portfolio Composition: Asset Allocation of Schemes

Being large-cap-oriented funds, both Edelweiss and ICICI Pru Large Cap Fund have a higher allocation to large-cap stocks at 82.37 and 84.86%, reflecting a relatively major tilt towards the robust blue-chip stocks from the market.

However, the mid-cap allocation differs substantially between both schemes. Edelweiss holds a high allocation of 12.93% to the emerging market leaders, whereas ICICI Pru Bluechip Fund allocates 6.17% to the mid-cap space. The mid-cap allocation offers a balanced exposure to medium-sized firms with strong growth prospects.

On the other hand, both the funds keep almost negligible allocation to the highly risky small-cap stocks, with Edelweiss at 1.65% and ICICI at 0.62%. This indicates that the investment strategy does not seek a high-risk high-reward approach and emphasizes the growth potential of well-established companies with strong fundamentals.

This suggests a more risk-averted approach, focusing on established companies rather than aggressively betting on smaller, high-volatility stocks.

[Read: Indian Equity Market Has Corrected! How to Approach Mutual Funds Now]

Market Volatility: Risk Profile of Schemes

Standard Deviation measures the volatility, with a higher value indicating a high level of fluctuating returns. Here Edelweiss Large Cap Fund (13.26) has a higher standard deviation compared to ICICI Pru Bluechip Fund (12.71). This indicates that Edelweiss's fund has experienced more fluctuations in its returns over the last three years, making it relatively riskier than the ICICI Pru Bluechip Fund.

The Sharpe Ratio, which assesses risk-adjusted returns, is higher for ICICI Pru Bluechip Fund (0.22) versus Edelweiss Large Cap Fund (0.19). A higher Sharpe Ratio suggests that ICICI Pru Bluechip Fund has delivered better returns per unit of risk taken, making it a more efficient risk-reward option.

Similarly, the Sortino Ratio, which focuses on downside risk, is also higher for the ICICI Pru Bluechip Fund (0.46) compared to the Edelweiss Large Cap Fund (0.37). This suggests that ICICI Pru Bluechip Fund has managed downside volatility better, making it a more stable option for investors concerned about market downturns.

Overall, Edelweiss Large Cap Fund appears to be more volatile, while ICICI Pru Bluechip Fund offers better risk-adjusted performance.

Top Holdings of the Schemes:

Being a large-cap fund, both ICICI Pru and Edelweiss schemes are focused on investing in high-quality stocks from the large-cap segment (first 100 stocks based on market capitalisation). However, their sector allocation differs slightly.

ICICI Pru Bluechip Fund's allocation is skewed towards the banking and financial services sector with top holdings like HDFC Bank and ICICI Bank. It also has a significant presence in the infrastructure and manufacturing space with allocations to L&T Ltd. and Ultratech Cement. The fund diversifies its holding further under the IT, Auto and Telecom sectors.

On the other hand, Edelweiss Large Cap Fund has a strong focus on the banking and IT sector, with ICICI Bank (7.48%), Infosys (3.37%), and TCS Ltd. (3.29%) among its top holdings. Additionally, the fund contributes to a mix of financials and energy stocks.

Overall, while both funds hold common stocks, ICICI Pru Bluechip Fund has a higher weightage in diversified businesses, whereas Edelweiss Large Cap Fund leans more toward banking.

Expense Ratio of the Schemes

As you can see, the ICICI Pru Bluechip Fund has a significantly higher Expense Ratio for the Direct Plan as compared to the Edelweiss Large Cap Fund making it a preferable option. Do note even a small percentage point difference in the expense ratio can accumulate over time and impact your returns.

On the contrary, Edelweiss Large Cap Fund's significantly higher expense ratio (with a major difference of 0.71%) under the regular plan makes ICICI Pru Bluechip Fund a cost-effective option for many investors.

However, remember that while a lower Expense Ratio can potentially lead to higher returns over time, it should not be the only factor to consider when investing in sectoral funds.

Suitability of Investors to the Schemes:

ICICI Pru Bluechip Fund is suitable for investors with a moderate to low-risk appetite who are willing to bet on blue-chip stocks that have long-term growth potential and offer stability to the portfolio. Given its lower exposure to mid and small-cap stocks, the fund may witness lower volatility as compared to its peers.

Investors looking to invest in a well-established large cap with a resilient investment approach and a robust long-term track record may consider ICICI Pru Bluechip Fund.

Edelweiss Large Cap Fund is also designed for investors who want to benefit from market leaders across various sectors. However, it follows a relatively growth-oriented approach with a slightly higher allocation to mid-cap stocks, which are sensitive to price fluctuations.

This scheme is more suited for investors who prefer moderate risk exposure while still seeking long-term capital appreciation through investments in blue-chip stocks. Edelweiss Large Cap Fund offers investors a combination of growth and stability.

To conclude...

While the market uncertainty may cause short-term disruptions, investors who remain patient and aligned with their long-term investment goals may benefit as the economic cycles unfold and market sentiments shift.

Both ICICI Pru Bluechip Fund and Edelweiss Large Cap Fund are solid choices within the large-cap segment, each offering distinct approaches to managing volatility. Ultimately, investors should carefully assess their risk appetite, time horizon, and market outlook before investing in these funds amidst ongoing volatility.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

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.