AssetPlus NFO Review - ICICI Prudential Flexicap Fund

by Anushi Jain

ICICI Prudential Mutual Fund is launching an NFO, which is open for subscription from June 28th, 2021 to July 12th, 2021.

Investment Objective: The investment objective of the scheme is to seek to generate long term capital appreciation by investing in equity and equity related instruments across market capitalisations without any restrictions.

Fund Manager: Mr. Rajat Chandak

Benchmark: S&P BSE 500 TRI

Fund Management Process:

  1. The fund will decide the allocation between large, mid and small cap primarily based on valuation with some inclusion of technical analysis parameters
  2. The AMC uses an in-house model for constructing stock portfolios in their fund. While the fund will select stocks taking into factors like earnings growth, macros, etc. the fund similar to other funds of the AMC also places huge emphasis on market valuations a criteria for selecting stocks.
  3. The fund will actively take calls opposing to market consensus like buying cyclical companies that are undergoing a weak cycle, buying companies whose sentiment in the market is negative.
  4. The fund will also be allocating to sectors or themes they consider undervalued or out of favour in the market.

Portfolio Construction:

The current fund allocation based on market valuation is as below -  

  • Largecap - 75-80%
  • Midcap - 5-10%
  • Smallcap - 10-15%

Backtested Returns:

The model has outperformed the benchmark 10 out 14 calendar years in the past.

Based on our analysis, we have observed the following pros and cons

Pros:

  1. The fund's heavy bias to valuation parameters in the stock selection process is a good strategy given the high market levels
  2. No restriction on market caps. The ability to adjust the portfolio based on market valuations of different categories
  3. Lower in risk and volatility as they invest across market caps

Cons:

  1. Other funds of the AMC have previously seen periods of underperformance due to their deep value and contra calls.

ICICI Mutual Fund has a long track record in the markets. Their funds are known for their value style of investing which is suitable for the current market conditions. A flexi cap fund is safer than pure mid and small cap funds at these valuations. Investors who are comfortable with short term volatility and want moderate to high alpha over a 5 year period can consider adding a small allocation to their portfolio.

It is of utmost importance that the fund should be discussed with your financial advisor and then ascertain whether it is suitable to invest. Always read the scheme documents fully before investing.