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ICICI Pru Banking & Financial Services Fund: Banking sector winner
Wed, Jun 08, 2016
Source : Khyati Shah, Citrus Interactive

ICICI Pru Banking & Fin Serv Fund is a sector-specific fund which mainly invests in companies in the banking and financial services industry. The primary investment objective of the scheme is to generate long-term capital appreciation to unit holders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services. The fund was launched in August 2008 and is benchmarked against the S&P BSE BANKEX index. The fund has an AUM of Rs. 899 crore as on April 30, 2016 which has gone up by Rs. 77 crore as compared to last year April 30, 2015 (Rs. 822 crore).

Currently there are twelve schemes which fall in the category of ‘banking and financial services funds’.

 

Performance:

The fund’s performance across different time horizons is extremely good as seen in the table given below. Since its inception the fund has given outstanding CAGR returns of 18.38 per cent whereas S&P BSE BANKEX Index has given CAGR return of 15.28 per cent. In the time horizon of YTD, 6 Months, 1, 3 and 5 years it has outperformed its category average and its benchmark. The outperformance margin vis-à-vis its benchmark is substantially high. The fund has been the top performing fund in the time horizon of 3 and 5 years.

 

YTD

6 Months

1 Year

3 Years

5 Years

Since Inception

ICICI Pru Banking & Fin Serv Fund

6.75

3.63

-1.04

18.74

15.32

18.38

S&P BSE BANKEX Index

4.05

0.98

-6.51

12.13

9.89

15.28

Category Average

6.23

3.27

-3.05

12.58

10.41

NA

Rank

5/12 

5/11 

3/11 

1/8 

1/6 

NA

Figures are in % as on May 31, 2016; Returns above 1-year in Compounded Annual Growth Rate

When we look at the calendar year returns it’s quite clear that this fund has substantially beaten its benchmark in each of the last four calendar years. It has marginally underperformed its benchmark in the year 2011 but the outperformance margin vis-à-vis its category average is substantially high in 2012, 2013, 2014 and 2015. The fund has been the top performing fund in the year 2012, 2013 and 2014.

 

2011

2012

2013

2014

2015

ICICI Pru Banking & Fin Serv Fund

-31.61

72.21

-2.63

68.96

-7.22

S&P BSE BANKEX Index

-31.59

56.72

-9.63

65.04

-9.92

Category Average

-31.87

59.13

-11.02

61.9

-8.46

Rank

 2/6

1/6 

1/8 

1/9 

4/9 

All figures in %

 

Risk: In terms of measures of risk such as Standard Deviation (measured over last three years), the fund has taken slightly higher risk compared to the category median whereas in terms of risk measure for Beta (measured over last three years) the fund has taken lower risk compared to the category median.

 

Standard Deviation

Beta

ICICI Pru Banking & Fin Serv Fund

1.34

1.11

Category Median

1.25

1.12


Risk-adjusted Returns: In terms of Treynor and Sharpe ratio (measured over last three years), the fund has provided higher risk-adjusted returns than the category median.

 

Treynor

Sharpe

ICICI Pru Banking & Fin Serv Fund

0.06

0.05

Category Median

0.02

0.02

 

Portfolio Characteristics:

Sector concentration: The concentration of the fund in the top three, five and ten sectors is much lower than the category median.

 

Top 3

Top 5

Top 10

ICICI Pru Banking & Fin Serv Fund

79.77

89.99

99.57

Category Median

88.12

95.88

100

 

Company concentration: The fund is diversified with concentration in top three, five and ten companies in its portfolio is much lower than the category median.

 

Top 3

Top 5

Top 10

ICICI Pru Banking & Fin Serv Fund

32.43

48.96

70.99

Category Median

48.15

63.76

83.2


Sector & Company Concentration signifies that the funds maintain a fairly diversified portfolio.

Number of equity holdings: The fund currently holds 26 stocks in its portfolio (April 30, 2016), which is higher than the median stock count for the banking and financial services industry category, which currently stands at 19. Thus, based on equity count the fund runs a diversified portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 20.

Thus, based on criteria such as equity count, sector concentration and company concentration, one can conclude that the funds maintain a highly diversified portfolio.

Cash allocation: Its cash allocation at the end of April 2016 was 6.48 per cent. The average cash allocation for last five years is 3.13 per cent. Its maximum allocation to cash over last two years was 7.02 per cent in January 2015 and lowest was 1.88 per cent in October 2015. In 2015 it had an average cash allocation of 3.45 per cent.

Portfolio Characteristics: The top 5 sectors in the portfolio had an allocation of 89.99%% which is lower than the category average of 95.54%. The top 5 sector include Bank – Private, Finance – NBFC, Bank – Public, Finance – Investment and Finance – Housing.

The fund’s exposure to cyclical stocks currently is 87.19% followed by Services with 0.60%. The Top five holdings are HDFC Bank Ltd., Induslnd Bank Ltd., Axis Bank Ltd., ICICI Bank Ltd. and Yes Bank Ltd.

In the last six months the fund has bought stocks of Taurus Ventures Ltd., Multi Commodity Exchange Of India Ltd., Max Ventures And Industries Ltd., Ujjivan Financial Services Ltd. and Equitas Holdings Ltd.

Whereas Stocks of IDFC Bank Ltd., Oriental Bank Of Commerce and Bank Of Baroda have been dropped from the portfolio. The stock of Capricon Ventures Ltd. was bought in January 2016 and sold in April 2016.

The current allocation to large cap is 61% and mid-cap is 30%.

 

Processes:

According to the Scheme Information Document (SID), the objective of the scheme is “to generate long-term capital appreciation to unit holders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services.” The fund is mandated to invest at least 70 per cent of its assets in equity and equity related instruments of banking and financial services companies.

According to the fund manager, “The fund is benchmarked against the BSE Bankex. The objective is to outperform the BANKEX. The universe is all the stocks which have predominant portion of their incomes coming from the banking and financial services space. This includes banks, NBFCs, insurance companies, rating agencies and brokerage houses. The approach is largely bottom-up although the top-down views are also considered. We look for growth stocks at a reasonable valuation.”

The fund’s expense ratio of 2.42% is significantly lower than the category average of 2.78%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.

 

Fund Managers:

ICICI Pru Banking & Fin Serv Fund is managed by Vinay Sharma and Shalya Shah.

Mr Vinay Sharma is is a fund manager at ICICI Prudential AMC. He joined the firm in 2010 and prior to this, he was an equity analyst for AIG Global Asset Management. Vinay is responsible for managing strategies dealing in Indian equity, using a long only investment style. He graduated from the Indian Institute of Management in Calcutta with a degree in Management and CFA from AIMR US.

Mr. Shalya Shah is a Fund Manager at ICICI Prudential AMC. He joined the firm in May 2013 and prior to this, he was a Software Engineer at Accenture Services Private Limited. Mr. Shah has earned a P.G.D.M. in Finance and Financial Management Services from FLAME School of Business and a Bachelor of Engineering degree in Information Technology from Thadomal Shahani Engineering College.

 

View:

ICICI Prudential Banking and Financial Services Fund is one of the best banking sector funds. The fund has emerged as a winner in the banking category in recent times. An investor keen on taking exposure to the banking and financial services sector can surely consider this fund.

To read the previous Citrus Analysis of ICICI Pru Banking & Fin Serv Fund Click Here

 
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