This week, we take a look at ICICI Prudential Large & Mid Cap Fund and ask if this can be used a single-portfolio fund. How well did it do in the past and if its makeover due to the SEBI categorization rules will be effective in future? New readers can explore the full archive of mutual fund reviews.
If you are serious about investing in a particular fund, the first step is to study its history. It is natural to expect a fund like ICICI Prudential Large & Mid Cap Fund to have undergone a couple of changes in strategy and name since inception in July 1998. There is no point in studying ten-year returns when the fund has changed strategy 2/3 times in that period.
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This fund began as ICICI Prudential Growth Plan and was a growth-oriented large cap fund with about 10-15% mid cap exposure. From the factsheet of April 2011, it was listed as ICICI Prudential Top 100 Fund. Sankaran Naren co-managed this fund from Aug 2009 to Feb 2011 and then again resumed in the same role from Feb 2012.
While its stock-picking style has changed from growth-oriented to growth + value-oriented at different times in its history, right up to May 2018, it has maintained a large cap dominated portfolio with a little exposure to mid caps.
I could not find the Top 100 version of its scheme document. So I am going to assume that it refers to the fund’s ability to largely choose from the top 100 stocks in terms of market capitalization with a little freedom to go beyond. The fund conveniently named Nifty 50 (price index) as its benchmark for most of its existence.
This “under the radar” aspect is welcome by some investors (like me and Mr Ravikiran Suryanarayana who suggested this article). From June 2018, ICICI Prudential Large & Mid Cap Fund was born. Due to the SEBI rules, the fund now has to hold at least 2X more mid caps: min 35% of large caps and min 35% of mid caps.
This also requires a change in benchmark and the AMCs choice is amusing, to say the least. From Nifty 50 which it could easily beat by picking stocks elsewhere, it has chosen Nifty LargeMidcap 250 Index. This is a combination of Nifty 100 and NIfty MIdcap 150 indices.
However, the weighting is not merely based on market cap. According to NSE
The aggregate weight of large cap stock and Midcap stocks are capped at 50% each
This is how the fund has fared in its avatar as a large and mid cap fund since June 2018. One cannot and one should not conclude anything from this, but for what it is worth it is good to see the fund keeping pace with the Nifty Large Midcap 250 index.
Going forward, I will not be surprised if ICICI ( and other such funds) decides to change the benchmark to either NSE or BSE 200 or S&P BSE 250 LargeMidCap Index going forward (Value Research uses this, so beware while comparing performance). Reason being, the S&P BSE 250 LargeMidCap Index does not have the 50% large cap, 50% mid cap limits. This makes it easier for the fund manager to beat as seen from the five year rolling returns below.
Now coming to the performance of the fund, shown below is the five-year rolling returns comparison with NIfty 100 and Nifty LargeMidcap 250.
We do not have to worry about Nifty LargeMidcap 250 here, but the performance wrt Nifty100 is not particularly exceptional over five years as the fund has the freedom to invest beyond the top 100 stocks by market cap from inception.
Over ten years (below), things are much better and the fund has kept pace with NIfty Large Midcap 250 even when it did not have significant mid cap exposure. Only the last couple of years, the performance wrt Nifty 100 has slipped. One can argue this is because the Sensex and Nifty are being held up by just a few stocks.
Will this fund work for you?
Existing investors must recognise that the fund’s mid cap exposure has significantly increased (more than doubled) and it has to be the case due to the 35% min exposure requirement and the benchmark being Nifty Large Midcap 250. At least until Naren is at the helm, the performance will not lag too much but can lead to frustrating periods due to the value style.
This is a quiet fund with a decent track record and has never shown a big leap in performance. If you like steady funds like these, then it will work for you. The new benchmark will be a challenge for the fund manager and we will have to wait and watch.
This fund will work as a single-portfolio fund for those with the maturity to be patient for several years, content with reasonable reward and consistent performance from a fund that has, for reasons best known to the AMC, stayed away from the limelight in comparison to its family peers.
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