Herd Instinct: ICICI Pru Focused Blue Chip vs. ICICI Pru Top 100

In this post, let us compare two large cap funds from the  same fund house. One a consistent performer with a terrific track record and the other a young superstar. The results will hopefully show how herd instincts among investors (and perhaps amcs  and therefore(?) intermediaries too?) can obscure good funds from the same fund house.

The results shown below are derived with:

Let us now list the salient features of both funds (Sources: VR online, thefundoo, fund SIDs, monthly reports)

ICICI Pru Focused Blue Chip Equity

Category: Large Cap

Benchmark: CNX Nifty

Inception Date: 23rd May 2008

AUM: 5879.7 Crores  (30th June 2014)

Investment Objective: To generate long-term capital appreciation and  income distribution to unit holders from a  portfolio that is invested in equity and equity  related securities of about 20 companies  belonging to the large cap domain and the  balance in debt securities and money market  instruments. The Fund Manager will always  select stocks for investment from among top 200 stocks in terms of market capitalization on  the National Stock Exchange of India Ltd.

If the total assets under management under this  scheme goes above Rs. 1,000 crores the Fund  Manager reserves the right to increase the  number of companies to more than 20.

Indicative asset allocation: 

Equity: 70% or more. Rest in debt or money market instruments

Portfolio:

Large cap: 88.5%

Mid-cap: 8.9%

Small-cap: 0.6%

Cash: 2%

Dominant Sectors:

Finance: 33.47%

Energy: 12.99%

IT: 13.79%

FMCG: 14.9%

ICICI Pru Top 100

Category: Large Cap

Benchmark: CNX Nifty

Inception Date: 9th July 1998

AUM: 666.56 Crores  (30th June 2014)

Investment Objective: To generate long-term capital appreciation  from a portfolio that is invested  predominantly in equity and equity related securities

(broader the mandate, the less verbose the objective!)

Indicative asset allocation: 

Equity: 95% or more.  Rest in debt or money market instruments

Portfolio:

Large cap: 79%

Mid-cap: 12.3%

Small-cap: 3.3%

Cash: 5.4%

Dominant Sectors:

Finance: 27.6%

Energy: 25.6%

IT: 15%

Portfolio overlap: Out of the 80% folio listed at VR online, there is an overlap of 52%. Which is significant.

Obtained with: Mutual Fund Portfolio Comparison Tool

Impression: There is reasonable similarity between the two funds (at the moment!). ICICI Top 100 is a bit more diversified than Focused Blue Chip equity.

ICICI Pru Focused Blue Chip Equity vs. Nifty

ICICI-focused

 

The data and graph speak for themselves. Needless to say that the fund has done excellently well when compared with the Nifty

Ulcer index is a measure of downside protection and investor stress.

ICICI-focused-1

 

Since Focused Blue Chips ulcer index is lower than that of Nifty, investors would have been sitting pretty with this fund.

Created with Mutal Fund Risk and Return Analyzer

Read more: Mutual Fund analysis with the Ulcer index

ICICI Pru Top 100  vs. Nifty

ICICI-top-100-2

 

Top 100 has a longer history of consistent outperformance.

ICICI-top-100-1

 

Again pretty decent when compared with the Nifty. However, not as much as Focused Blue Chip.

Created with Mutal Fund Risk and Return Analyzer

ICICI Pru Focused Blue Chip Equity vs. ICICI Pru Top 100

ICICI-both

 

This Ulcer index comparison confirms that Focused Bluechip has better downside risk than Top 100. However,

ICICI-both-1

 

A score of more than 50% means focused blue chip has done better than top 100. Created with  Fund A vs. Fund B Risk and Return Analyzer

While there is not much difference in terms of returns, Top 100 has  had better overall risk-adjusted performance than focussed blue chip for the last four years.

Is this because  of its large AUM? 

In Aug. 2009, Focused Blue Chip had 20 stocks in its folio (as per its original mandate) with an AUM of ~ 740 Crores and an annual churn ratio of 1.18 times.

In Aug. 2014, it has 50 stocks. It has to, because its AUM is now ~ 5879 Crores. Its churn ratio has dropped to 0.57 times.  Read more about the impact of size on churn ratio here:  Mutual Fund Size vs.  Performance: a case study

My answer would be, yes.

ICICI Top 100 has a current AUM of ~ 666 Crores.  Lower than what focused blue chip had 5 years ago?

The reason I wrote up this analysis is to pose the question why is this so?

In terms of performance, that is bare returns, there is not much difference between the two funds.  In fact, Top 100 has a longer track record of consistency.

So why has this been pushed to the background?  Who is responsible for this?

The AMC? The distributors? The investors?  My guess is everyone.

The only difference between the two funds:

Focused blue chip began operations at the start of the 2008 financial crisis.  Therefore, I think  it appeared as a saviour to many  since the established funds  (incl. top 100) were struggling to cope with the crash.

While existing mutual fund investors flocked to focused blue chip equity, new investors saw it as a safe bet. One person said, 'the fund would never fail'.

It is heartening that MorningStar analysts have given a 'silver' rating  to Top 100 and a  'neutral' rating to focused blue chip, while VR online rates them both as 5* funds.

Silver: Fund with advantages that outweigh the disadvantages across the five pillars and with sufficient level of analyst conviction to warrant a positive rating.

Neutral: Fund that isn't likely to deliver standout returns but also isn't likely to significantly underperform, according to the analysts.

Now a few definitions for your perusal. Hopefully, they would clarify the first word in the title of the post.

Herd Behaviour

A group of animals fleeing from a predator shows the nature of herd behavior. In 1971, in the oft cited article "Geometry For The Selfish Herd," evolutionary biologist W. D. Hamilton asserted that each individual group member reduces the danger to itself by moving as close as possible to the center of the fleeing group. Thus the herd appears as a unit in moving together, but its function emerges from the uncoordinated behavior of self-serving individuals.   (wikipedia)

Herd Instinct

A mentality characterized by a lack of individual decision-making or thoughtfulness, causing people to think and act in the same way as the majority of those around them. In finance, a herd instinct would relate to instances in which individuals gravitate to the same or similar investments, based almost solely on the fact that many others are investing in those stocks. The fear of regret of missing out on a good investment is often a driving force behind herd instinct. (investopedia)

Information cascade

This occurs when a person observes the actions of others and then—despite possible contradictions in his/her own private information signals—engages in the same acts. A cascade develops, then, when people “abandon their own information in favor of inferences based on earlier people’s actions” (wikipedia).

Moral of the story:  Never buy a fund because it is popular or even if a professional recommends it.  Focus on your own portfolio. Do your own research. Ignore star ratings.

Note:  Do not sell or stop investing in focused blue chip because of this post. Evaluate  your needs and make informed choices.  You know where to find the  necessary tools 😉

~~~~~~~~~~~~~~~~~~~

Many years ago, my wife and I took an evening stroll around a temple tank. The moon was full and beautiful. We stopped to stare at it for a few minutes and took some pictures.  Before we stopped to look at the moon, no one around us cared about it in the busy street. When they saw two people looking at something, they became curious and joined in. Soon there was a chain reaction! I am pretty sure behavioral scientists have a word for this phenomenon.  Do share, if you know what it is.

Install Financial Freedom App! (Google Play Store)

Install Freefincal Retirement Planner App! (Google Play Store)

book-footer

Buy our New Book!

You Can Be Rich With Goal-based Investing A book by  P V Subramanyam (subramoney.com) & M Pattabiraman. Hard bound. Price: Rs. 399/- and Kindle Rs. 349/-. Read more about the book and pre-order now!
Practical advice + calculators for you to develop personalised investment solutions

Thank you for reading. You may also like

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete  the entire comment or remove the links before approving them.

42 thoughts on “Herd Instinct: ICICI Pru Focused Blue Chip vs. ICICI Pru Top 100

  1. karthik.

    I am one of the herd who invested in ICICI Prudential Focused Bluechip Equity.I did however narrow down this fund based on your pdf to select mutual funds.There is certainly a case for investing in "Top 100" so that you can expect slightly better returns especially during a bull run.However the "downside protection" of Focused Bluechip Equity is among the best that I have seen.Thanks for the interesting comparision.

    Reply
    1. pattu

      I think so far focused has done extremely well. I am not sure about top 100 doing well doing bull run. Perhaps it could because of a good fund manager and small size.

      Reply
  2. karthik.

    I am one of the herd who invested in ICICI Prudential Focused Bluechip Equity.I did however narrow down this fund based on your pdf to select mutual funds.There is certainly a case for investing in "Top 100" so that you can expect slightly better returns especially during a bull run.However the "downside protection" of Focused Bluechip Equity is among the best that I have seen.Thanks for the interesting comparision.

    Reply
    1. pattu

      I think so far focused has done extremely well. I am not sure about top 100 doing well doing bull run. Perhaps it could because of a good fund manager and small size.

      Reply
  3. Shankar Venkatraman

    Pattu are the expense ratios for direct investments also the same across these 2 funds ? Does it make sense to consider this too for your analysis ?

    Reply
    1. pattu

      Higher the AUM, lower the expense ratio. So focused bluechip will have lower expense ratio in both regular and direct options. The direct option will be about 0.5% or so lower. Portfolios are not identical. So expense ratio comparison is not possible.

      Reply
  4. Shankar Venkatraman

    Pattu are the expense ratios for direct investments also the same across these 2 funds ? Does it make sense to consider this too for your analysis ?

    Reply
    1. pattu

      Higher the AUM, lower the expense ratio. So focused bluechip will have lower expense ratio in both regular and direct options. The direct option will be about 0.5% or so lower. Portfolios are not identical. So expense ratio comparison is not possible.

      Reply
  5. Suresh

    The reason Top 100's AUM is low is because the AMC, for reasons it knows best, neglected to promote the fund. Even now it promotes Focused Bluechip much more aggressively than Top 100.

    Reply
  6. Suresh

    The reason Top 100's AUM is low is because the AMC, for reasons it knows best, neglected to promote the fund. Even now it promotes Focused Bluechip much more aggressively than Top 100.

    Reply
  7. Nithin R

    Dear Pattu, your website and analysis is simply fantastic. There is a lot to learn from each of your posts. I make it a point to check your website everyday just like reading a newspaper. (Anyways now I have subscribed to your blog).

    I used to wonder why morning star rated FBC fund as neutral wher as Top100 as silver.These ratings were given in March 2013 and Dec 2013 respectively. I thought perhaps the ratings were quite old at least for FBC. What I have also observed is that even fundsindia has FBC fund in most of their ready to go portfolios.

    In fact it is a coincidence that I too ran a similar comparison between these two funds with the help of your tools yesterday. I think this observation that you made, might be the explanation for the silver morning star rating for Top100 fund.

    I think to sum it up FBC is better known across investors because it is marketed better and the silver lining of this fund in contrast to Top100 is its better downside protection.

    BTW, I myself have this fund (FBC) in my portfolio for large cap section.

    Also, you said that perhaps FBC has lower score because of its higher AUM, i.e. lower churn ratio but in the accompanying article you concluded that there is hardly any correlation between fund performance and AUM size. Can you please shed light on what you meant ?

    Thanks.

    Reply
    1. pattu

      Thank you very much. Apologies for the delayed response. Yes, in the article on size vs performance, I could not find any proof. However, it is clear that the fund manager is stuck with some stocks if the AUM is large. If these stocks are solid large caps then it is okay. If they are duds, it is trouble. With reg. focused blue chip, keep an eye on its performance.

      Reply
  8. Nithin R

    Dear Pattu, your website and analysis is simply fantastic. There is a lot to learn from each of your posts. I make it a point to check your website everyday just like reading a newspaper. (Anyways now I have subscribed to your blog).

    I used to wonder why morning star rated FBC fund as neutral wher as Top100 as silver.These ratings were given in March 2013 and Dec 2013 respectively. I thought perhaps the ratings were quite old at least for FBC. What I have also observed is that even fundsindia has FBC fund in most of their ready to go portfolios.

    In fact it is a coincidence that I too ran a similar comparison between these two funds with the help of your tools yesterday. I think this observation that you made, might be the explanation for the silver morning star rating for Top100 fund.

    I think to sum it up FBC is better known across investors because it is marketed better and the silver lining of this fund in contrast to Top100 is its better downside protection.

    BTW, I myself have this fund (FBC) in my portfolio for large cap section.

    Also, you said that perhaps FBC has lower score because of its higher AUM, i.e. lower churn ratio but in the accompanying article you concluded that there is hardly any correlation between fund performance and AUM size. Can you please shed light on what you meant ?

    Thanks.

    Reply
    1. pattu

      Thank you very much. Apologies for the delayed response. Yes, in the article on size vs performance, I could not find any proof. However, it is clear that the fund manager is stuck with some stocks if the AUM is large. If these stocks are solid large caps then it is okay. If they are duds, it is trouble. With reg. focused blue chip, keep an eye on its performance.

      Reply
  9. Pattabiraman Murari

    Higher the AUM, lower the expense ratio. So focused bluechip will have lower expense ratio in both regular and direct options. The direct option will be about 0.5% or so lower. Portfolios are not identical. So expense ratio comparison is not possible.

    Reply
  10. Pattabiraman Murari

    Higher the AUM, lower the expense ratio. So focused bluechip will have lower expense ratio in both regular and direct options. The direct option will be about 0.5% or so lower. Portfolios are not identical. So expense ratio comparison is not possible.

    Reply
  11. Sundararajan

    Thank you for all your postings and which helped me to understand better. I used your MF selection PDF and short listed couple of them (large cap equity). Then did some more analysis and found out almost all of the (top 3 or 4 funds) funds top 10/15 holdings are pretty much same.
    My question is: I am planning to create my own portfolio of these stocks (less than 20 stocks) and invest them on SIP basis over a year or so.
    Pros: No need to pay MF fees, More control
    Cons: Pay charges while buying and selling. Keep monitor for performance (on yearly basis). More stress.
    What are tax impact? I understand that long term mf proceeds are non taxable or less tax bracket. Is it same for stocks as well?
    Are there anything that I am missing in this approach? fyi I have not finalized on this approach yet, but just thinking about this. Please let me know.
    My goal : Invest in equity for 10 or more years.

    Reply
    1. pattu

      You can see my latest post in this regard. SIP in large caps should work. Taxation is same as mfs. Less than one year old purchase at 15% and more than 1Y, tax-free. Volatility will be significant. So before investing ensure you do so only in solid companies. Understand their balance sheet well.

      Reply
  12. Sharan

    Pattu Sir,

    I find it awesome that you manage your time so well for research, blogging and above all promptly responding to everyone. Yes, as someone has pointed out above, there's lots to learn and ponder over in each of your posts. I confess that I too am part of the herd 😀 And I have been running a SIP from quite sometime and I too found comfort about FBC from your 'Choosing MF pdf' 🙂
    Thanks a lot!

    Reply
  13. jaimin

    It takes me almost one month to read your all post and understand this article.finally i understand this post thank you for this post still final verdict is not coming "size of fund increses that afect perfomance of fund and not much more flexiable"

    Reply
    1. freefincal

      This is not about size. I wish to point out that people ignore good funds and flock to 'star funds' which gives them a large AUM. Whether this will affect performance or not is not yet clear.

      Reply
  14. Jitendra

    Sir
    While comparing two funds with 10+ years track record of same catagory(Large Cap) with same benchmark suppose,
    1. Fund-A have better Downside protection than Fund-B
    2. Fund-B have better returns than Fund-A wrt benchmark in last 10 year
    3. Fund B have higher Alpha & Standard Deviation than Fund A as per Morningstar site.
    Then which fund to select among the two?

    Reply
    1. freefincal

      Typically alpha stems from good downside. IF yes, I will choose that fund. If no, I will worry when the returns came - only when market moved up?

      Reply

Do let us know what you think about the article