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AMC INSIGHT
When markets rally expect Balanced Funds to capture the uptrend- S Naren
- ICICI Prudential Mutual Fund

ICICI Prudential Balanced Fund is one fund in the balanced fund category which has been giving consistent returns since its inception. A Fund managed by Mr. S Naren himself, the scheme AUM has grown over 3X in last one year and has outperformed peers in the category.  While this is a fund majorly positioned for SWP in clients portfolio by advisors, Naren shares the same should form part of the core portfolio of the client.


Read on to know more about the fund from Naren himself.


MF Live: What are the key highlights of the ICICI Prudential Balanced Fund?

S. Naren: ICICI Prudential Balanced Fund is an open-ended balanced scheme with 65-80% allocation to equity and the remaining to debt. In equity, the fund looks at a blend of large and midcap stocks while in debt, the fund intends to tactically allocate to longer duration fixed income securities with credit rating AA and above.

 

MF Live: ICICI Prudential Balanced Fund has been receiving number ONE Rank from CRISIL in the Balanced Fund category for two consecutive quarters. The fund has outperformed the Benchmark and the category average across various time horizons. Also, the fund has delivered the maximum return in the category this year. What has worked for the fund?

S. Naren: The fund has primarily been large cap focused and hence the performance has been stable over the years.  In terms of portfolio positioning, the fund manager usually looks for sectoral exposure where there is a potential. As a result, the sectoral variations do change based on the relative attractiveness of different sectors.


Over the last one year, the fund has been significantly overweight v/s Benchmark on Power to benefit with the fall in interest cost, thereby reducing the ultimate cost of power generation, which increases the probability of an off-take by the DISCOMs. Telecom, minerals and chemicals are the other bottom up picks, which the fund has been overweight v/s Benchmark on. This augmented the performance of the fund in the last one year.

 

MF Live: Launched in the year 1999, the fund AUM has however grown 3X in the last one year. From an AUM of Rs. 2,643 crores in March 2016 to an AUM of Rs. 7,413 crores in February 2017, what has been the reason for such inflow of funds? How have you positioned the fund now and for future market cycles?

S Naren: ICICI Prudential Balanced Fund has delivered better returns over the last 1 year (29.69%), 3 year (19.85%), 5 year (18.90%), and 10 year (13.03%) basis. Given the positive investment experience the fund has generated, investors have reposed their faith in this fund. Having said that balanced fund as a category has also witnessed tremendous traction over the last two years.


In terms of positioning, when markets rally we expect Balanced Funds to capture the uptrend and when markets turn volatile, balanced funds are positioned to make the most of volatile times, thanks to the defensive strategy by switching between equity and debt. We have positioned ICICI Prudential Balanced Fund as a conservative product to help more and more retail investors to enjoy the benefits of long term investing.

 

MF Live: What is the framework you have for selecting stocks in the portfolio? Which sectors are you heavyweight on?

S. Naren: The fund employs ‘top-down’ and ‘bottom-up’ strategies for stock picking. A top-down approach helps with risk control through sector diversification while the bottom-up approach, seeks to identify companies that have above-average profitability and are supported by sustainable competitive advantages. 


In terms of market caps, the Fund looks at a blend of large and midcap stocks. The allocation is decided on a tactical basis rather than any predefined ratio.

For the stock selection process, the Fund house aims to include stocks with long-term growth prospects but currently trading at modest relative valuations, given certain financial measurements such as their price-to- earnings ratios, dividend income potential, and earnings power.


In terms of the sector positioning, the fund is currently overweight on Banking and Software. Banking sector could stand to benefit once demand picks up and credit growth takes off. As for Indian software, there is expectation of improvement in US corporate profits, and likely increase in IT spends.


The fund is also overweight on Power, as the industry is at its lowest capacity utilization, and with increase in demand and no fresh investment into the power sector, the existing capacities could benefit.


MF Live: How have you positioned the Debt component of the fund?

S. Naren: The fixed income component endeavors to earn reasonable addition in wealth by taking well-researched exposure to corporate securities. The debt component in the fund is largely based on our outlook towards duration. Over the last two years we have been running a longer duration fixed income securities with credit rating AA and above, which offer reasonable accrual.


MF Live: Advisors are looking to strategize client portfolios with SWP/ STP with ICICI Balanced Fund. What according to you would be the best strategy for advisors to follow when it comes to ICICI Prudential Balanced Fund? How should they position this fund?

S. Naren: We believe that ICICI Prudential Balanced Fund should be a part of an investor’s core portfolio as balanced fund’s strategy can provide the much needed stability to the entire portfolio. Since this fund is a combination of debt and equity, this fund is ideal for lump sum investment, irrespective of the market conditions. SIP is another option which will help inculcate disciplined investment habit and will help build a corpus over long term.

Also, this is one of the apt funds for which the SWP option can be considered as the market risk is low when compared to pure equity funds. So, investors who wish to have steady cash flows can opt for the Monthly Dividend + Automatic Withdrawal plan. By choosing this option an investor can receive monthly dividends* declared by the fund. In rare case when the fund does not declare a dividend, the investor can withdraw 0.75% of the net asset value under the AWP.


*Payment of dividend is subject to availability of distributable surplus and Trustee Approval.


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