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Click here to view fund presentation on ICICI Prudential Top 100 Fund
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Click here to know more about percentiles and the colour codes
What do percentiles and their colours signify?
Fund performance is typically measured against benchmark (alpha) and against competition.
Performance versus competition is measured through percentile scores - ie, what
percentage of funds in the same category did this fund beat in the particular period?
If a fund's rank in a year was 6/25 it means that it stood 6th among a total of
25 funds in that category, in that period. This means 5 funds did better than this
fund. In percentile terms, it stood at the 80th percentile - which means 20% of
funds did better than this fund, in that particular period. If, in the next year,
its rank was 11/26, it means 10 other funds out of a universe of 26 did better than
this fund - or 38% of funds did better than this one. Its percentile score is therefore
62% - which signifies it beat 62% of competition.
Most fund managers aim to be in the top quartile (75 percentile or higher) while
second quartile is also an acceptable outcome (beating 50 to 75% of competition).
What is generally not acceptable is to be in the 3rd or 4th quartiles (beating less
than 50% of competition). Accordingly, we have given colour codes aligned with how
fund houses see their own percentile scores. Green colour signifies top quartile
(percentile score of 75 and above), yellow or amber signifies second quartile (percentile
scores of 50 to 74) and red signifies 3rd and 4th quartile performance. A simple
visual inspection of colour codes can thus give you an idea of how often this fund
has been in the top half of the table and how often it slips to the bottom half.
A great fund performance is one which has only greens and yellows and no reds -
admittedly a tall ask!
WF: CY16 was a great year for the fund in terms of alpha as well as quartile ranking. What factors helped drive this performance? What does your attribution analysis suggest as key contributors to performance?
Naren: One of our key strategies in this fund is to generate returns through active sector rotation. In 2015, a significant portion of our portfolio was invested in sectors like Metals and Utilities, which were underperforming then. However, we stuck to our conviction, and in 2016, the said sectors did well helping the performance of our fund.
WF: Does peer group performance put pressure on fund managers to think and act more short term than they ideally would like? How does one balance out doing what is right for the fund's long term performance vs maintaining desired positions in league tables?
Naren: When the market becomes abnormally over or undervalued, we would like to bet against the overvaluation or undervaluation. We have continued to focus on long term gains rather than short term performance. Even our sector bets are based on this approach. While there could be short term volatility due to the sector and stock bets, the fund's goal is to deliver long term performance.
For instance, in the short term, we believe telecom may not perform very well but it has still made it to Top 100's portfolio as one of the large holdings. Last year, metals were underperforming but were still one of the large part of the portfolio due to fund manager's conviction. The patience paid off as it helped drive the performance of the fund.
WF: In the last 3 months, you have ramped up your exposure to banks, where you were sizeably underweight (from 12% in Dec16 to 19% in Feb17, vs 25% for the benchmark). What has changed at the margin in recent months to prompt this move?
Naren: We actively review our portfolio positions and keep an eye on opportunities where the risk-return trade-offs are good. While taking investment positions, we seek relatively undervalued companies or sectors. And we found corporate banks to be relatively undervalued as compared to the rest of the market.
WF: You continue to maintain a significant overweight position in telecom (8% in fund vs 2% for benchmark) amidst the ongoing price wars and now consolidation. Some fund managers have quit this sector booking losses as they believe rational pricing is still a long way away. What factors sustain your conviction in this contrarian call?
Naren: The telecom sector is going through a phase of consolidation. With new entrants, there is also increased competition and pressure on the industry. Specially, with bigger players having entered the market, we see the smaller players at the periphery exiting. This may finally consolidate the market and in the next three years, we may see price stability and ARPUs moving up which is key indicator of the sector. We believe one should bet on such sectors when pricing wars are going on.
However, if we see returns coming far in advance of the cycle, we could book profits. In fact, if we look at the recent data, the overall weightage to telecom has reduced as specific stock bets have performed and we have booked some profits.
WF: What is your outlook on earnings growth in FY18? Which sectors do you see posting healthy earnings growth in FY18 and which sectors do you see continuing to struggle?
Naren: We believe earnings growth will reflect at the end of next two years. We are unclear on the earnings growth in FY18. While economic cycle looks reasonably good for the next few years, market expectations are already built in. So, as we see the economic cycle turning favourably, the markets may be in line with it. We believe investors should be more cautious after earnings growth come in.
In terms of sectors, we are positive on infrastructure as a broad theme. In the past 10 years, the returns of companies in infrastructure theme have been subpar. And a developing nation like India requires more power, more roads, railways and other infrastructureto support the economy. So, we think infrastructure theme is likely to do well in the next three to five years.
WF: Your presentation on this fund bills it as "The Next Potential Outperformer". What factors drive your belief that large caps will lead performance league tables and that your fund is well positioned in this space to be an outperformer?
Naren: With the mid & small cap space doing well over the past three years or so, we see large caps offer a fairly attractive investment opportunity. In fact, currently large caps hold better value for investors as against broader markets. The biggest advantage of large cap companies is the stability and growth they bring to the portfolio. Our fund's portfolio is a good mix of both large and mid cap companies with a skew to large caps. So for investors looking to invest in large caps can consider investing in ICICI Prudential Top 100 Fund, which has been a consistent outperformer in the large cap fund category.
Performance thus far
SIP Performance
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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Fund Focus: ICICI Prudential Top 100
