Tuesday, February 16, 2016

ICICI Prudential Long Term Equity: Top-class performer, consistently

The financial year is inching towards closure. If you’re looking for a tax-saving investment, equity-linked saving schemes may be good vehicles to save tax as well as make long-term gains.

The recent market correction has further added to the attractiveness of equity mutual fund schemes.

However, given that the volatility may not abate soon, it is important to choose schemes that have a consistent track record of outpacing their benchmark.

ICICI Prudential Long Term Equity, which until September 2015 was named ICICI Prudential Tax Plan, is one such fund. The fund has surpassed its benchmark Nifty 500 Index consistently across market cycles. Investors with a moderate risk appetite could consider investment in the fund. But it being an ELSS, remember that this fund has a three-year lock-in.

Performance and strategy

The fund has been able to deliver top-quartile performance over three- and five-year periods. Its one-, three- and five-year returns have been 6-7 percentage points higher than its benchmark.

ICICI Prudential Long Term Equity has demonstrated consistency when it comes to outperformance vis-à-vis the benchmark. The scheme’s annual returns have been higher than the benchmark almost 95 per cent of the time in the last five years.

In the past, the scheme has been successful in containing downside during bear phases in the market. Consider the period between November 2010 and December 2011. Even as the BSE 500 Index shed 30 per cent then, this fund managed to contain the fall at about 25 per cent.

Exiting a few underperformers, such as NCC, Aban Offshore and HCL Infosystems helped the fund fare better than its benchmark. Likewise, during the January-August 2013 fall, the scheme managed to arrest the fall in NAV at less than 13 per cent, even as the benchmark lost about 16 per cent during the same period.

This is despite the fund’s higher mid- and small-cap slant relative to its benchmark. Currently, about 40 per of the scheme’s assets are parked in stocks of mid- and small-sized companies. This is twice that of the benchmark, Nifty 500 Index.

But this higher small- and mid-cap tilt has helped the scheme’s performance during pull-back rallies. In the March 2009-November 2010 period, while the index gained a little over 160 per cent, the fund managed to clock gains as high as about 220 per cent.

In the last one year, the scheme has been shedding its aggressive skin by loading up on defensive themes — pharma and IT; these two now account for about 30 per cent of the scheme’s assets.

The fund has also been a buyer in consumer stocks — durables and non-durables. ICICI Prudential Long Term Equity has been a seller in cyclical themes, such as banks, power and oil and gas.

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