The two-decade-old fund, ICICI Prudential Top 100, adopted a new name--ICICI Prudential Large & Mid Cap Fund--and has seen a gradual shift from being a pure large-cap fund to large and mid-cap fund.
Bronze Rating
The Morningstar Analyst Rating of this fund has been downgraded to Bronze from Silver.
The fund has delivered risk-adjusted returns well ahead of competitors over the long term under its previous category. However, in the current category, the fund does not look the best amongst its peers.
A transition in the fund’s category and sharing of portfolio responsibility with a new manager create uncertainty.
However, the fund still has a positive rating because of a highly competent lead manager and consistent process. Moreover, there may be difficult quarters because of its value bent, but, under Naren's stewardship, the fund should pay off handsomely in the long run.
Fund Managers
Sankaran Naren is an able portfolio manager and has been with the fund house since October 2004. This is Naren's second stint after running the fund from September 2006 to February 2011. He relinquished fund management duties for about a year and returned to the helm in February 2012. We value the long tenure of the manager and the consistency that brings to the process. He is known for being a contrarian and has a good understanding of value stocks.
Prakash Goel joined the fund as a co-manager in October 2017. Post the reclassification, he started managing the mid-cap space, which constitutes 35%-40% of the portfolio. It remains a watch point as he lacks fund management experience.
Top-down view
The fund managers focus on a top-down and bottom-up approach, which fits well into the overall theme. They evaluate sectors from a top-down perspective, favouring those with attractive fundamentals and shifting away from ones where the managers think valuations are stretched.
The managers study various macroeconomic factors to form their top-down views. Within the chosen sectors, they use relative valuation parameters to invest in stocks that are attractively priced relative to their growth prospects.
Investment style
The fund has a mix of value and growth styles.
Companies favoured by the investment process typically display quality management, strong financial strength, and favourable growth prospects. The resulting investment style can be best characterised as having a slight growth tilt.
Considering Sankaran 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.
We believe the investment process deployed here allows the managers to play to their strength, and, despite the change in the fund mandate, we are confident that, as long as Naren helms this fund, he can make the process work.
From a sector standpoint, Naren takes big sector bets and deviates significantly from its benchmark index and the category peers based on his convictions.
Market-cap bias
The fund has a large-cap bias.
The fund has been historically managed as a pure-play large-cap offering, maintaining around 80% of its assets in the segment. However, with the change in mandate, the fund has seen a gradual shift towards the mid-cap space.
Currently, the fund maintains 35%-40% allocation in the mid-cap stocks and intends to increase exposure as valuation becomes reasonable. While the minimum limit is 35% each in large-cap and mid-cap stocks, the maximum is capped at 65%.
With the increased exposure in mid-cap stocks, the portfolio managers have been maintaining a diversified portfolio with an investment in 50-55 stocks.
Cash calls
Taking cash calls is not a part of the investment strategy. The fund remains fully invested, and cash levels are unlikely to exceed 5% of assets.
View more details on the fund here.
