ICICI Pru Multi-Asset Fund: Capitalising on its Contrarian Bets

Multi-Asset Funds aim to generate modest capital appreciation while strategically reducing the overall risk from a combined portfolio of assets that share a low-correlation with each other (usually equity, debt, and gold). The low correlation among assets enables Multi-Asset Funds to protect the downside risk during uncertain economic conditions and volatile markets to generate better risk-adjusted returns.

ICICI Pru Multi-Asset Fund is a contrarian style multi-asset allocation fund that has done exceptionally well in the last couple of years. It is the oldest fund in the category and has rewarded its investors with decent risk-adjusted returns over the long term; thus, gaining popularity.

Data as on February 23, 2022
(Source: ACE MF)

ICICI Pru Multi-Asset Fund has recorded an extraordinary performance in the last one year, outpacing the category average and the benchmark by a margin of more than 10 percentage points. Its recent encouraging performance has even boosted its long-term track record. It now stands among the top quartile performers in the Multi-Asset Allocation fund category across time frames considered and has shown reasonable growth compared to the benchmark.

With a standard deviation of 18.71%, ICICI Pru Multi-Asset Fund is prone to higher volatility compared to the category average and benchmark index. Nonetheless, the superior performance in the recent past has helped the fund to fare well in terms of risk-adjusted returns. Its Sharpe Ratio of 0.24 is ahead of the benchmark and category average, indicating its ability to generate reasonable risk-adjusted returns.

Investment strategy of ICICI Pru Multi-Asset Fund

Classified under Multi-Asset Allocation Funds, ICICI Pru Multi-Asset Fund aims to generate capital appreciation and income by investing across asset classes. The fund usually holds 65%-80% of its assets in equities, 10%-35% in debt and money market instruments, 10%-30% in units of Gold ETFs/ Exchange Traded Commodity Derivatives (ETCDs), and up to 10% in REITs & InvITs.

For the equity portion, the fund adopts the bottom-up approach to identify companies with above-average profitability supported by sustainable competitive advantages and also uses the top-down discipline for risk control by ensuring a wholesome representation of companies from various industries. It also takes exposure to various equity derivatives including futures and options strategies for hedging, portfolio rebalancing, and other purposes.

In the case of Debt and Money Market securities, ICICI Pru Multi-Asset Fund aims to identify securities that offer an optimal level of yields/returns, considering the risk-reward ratio. It carries out an in-depth credit evaluation of securities to mitigate credit risk. In addition, the fund studies the macro-economic conditions, including the political, economic environment and factors that affect liquidity and interest rates, and positions the portfolio accordingly.

The fund also invests in the appropriate ETCDs or units of gold ETFs, along with slight allocation to REITs & InvITs, and Preference shares.

As of January 31, 2022, ICICI Pru Multi-Asset Fund held 44 stocks in its portfolio. The top 10 stocks in the portfolio together constitute around 46.6% of its assets and contain a well-rounded mix of various sectors. The top holdings in the portfolio comprise large-cap names (including PSUs) like NTPC, Bharti Airtel, ICICI Bank, ONGC, Sun Pharma, Axis Bank, among others. Many of these stocks have been part of the fund's portfolio for well over two years now. The fund also invests in Derivatives (Futures & Options) for hedging purposes.

ICICI Pru Multi-Asset Fund has benefitted the most from its holdings in NTPC, Hindalco Industries, ONGC, ICICI Bank, Bharti Airtel, SBI, and Infosys that contributed over 25% to its returns in the last one year. It also benefitted from its holdings in Sun Pharma, Tata Motors - DVR, Indian Oil Corporation, among others.

ICICI Pru Multi-Asset Fund's portfolio is currently diversified across a host of cyclical, sensitive, and defensive sectors. Banking & Finance stocks form its top holding with an allocation of around 18.4%, followed by Power, Telecom, Auto, Pharma, and Oil & Gas. Petroleum, Infotech, and Metals are among the other core sectors in the portfolio. The top 10 sectors together accounted for around 66.2% of its assets.

In terms of debt, the fund invests in moderate-rated corporate debt instruments (current exposure is 3.5%) and sovereign-rated treasury bills and government securities (currently 7.2% of its assets). The average maturity profile of debt instruments is 2 to 5 years signifying moderate interest rate risk.

Additionally, the fund had an allocation of 2.6% in Gold ETF along with exposure to Gold ETCDs. It also held 1.8% in REITs &InvITs.

Suitability

ICICI Pru Multi-Asset Fund endeavours to maintain an equity level of 65%-80% in its portfolio with a large-cap bias. The fund has been successful in selecting fundamentally sound undervalued stocks by following a contrarian approach. Since the fund follows a contrarian approach, it can witness bouts of underperformance in conditions where growth-oriented funds may be doing well. However, over the long term, it can generate returns that are competitive to its peers and even outpace them.

If the equity valuations look stretched, the fund has the flexibility to reduce its equity exposure and simultaneously increase exposure to other asset classes, such as derivatives, debt, gold, and REITs & InvITs, depending on the available opportunities. ICICI Pru Multi-Asset Fund has a veteran fund manager Mr Sankaran Naren at the helm, who is known for his contrarian and value picks. Accordingly, the fund has the potential to steadily generate market-beating returns over complete market cycles.

ICICI Pru Multi-Asset Fund is suitable for investors looking for a contrarian style multi-asset fund to benefit from diversification and capital appreciation over the long-term.

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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