Last Updated on December 29, 2021 at 5:39 pm
We review the performance of ICICI Prudential US Bluechip Equity Fund to determine if it has managed to outperform the S &P 500 TRI index in INR. We ask if it makes sense to invest in an actively managed S&P 500 fund or choose the passive route with Motilal Oswal S&P500 index fund.
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ICICI US Bluechip Fund is an open-ended equity scheme investing predominantly (up to 80%) in securities of US large cap companies that may be part of S& P 500. It’s stock selection strategy would be a combination of both top-down and bottom-up approach without any sector preference. It may occasionally deviate from a diversified portfolio and go heavy on particular sectors.
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The fund is an actively managed international thematic fund. The fund manager directly invests in US stocks without investing in another fund or ETF. For a full classification of international funds, see List of international mutual funds in India 2020 (with classification).
Since the fund is benchmarked to the S&P 500 TRI (does not mention if it is in USD or INR!) and since we now have an S&P 500 index fund from Motilal Oswal (also invests directly), it is natural to find out how the US Bluechip fund has fared against this index.
Launched in July 2012, the fund now has an AUM of 692 Crores. Its expense ratios are, to say the very least atrociously high: 2.6% for the regular plan and 1.68% for the direct plan. The difference being the commissions paid out of investors money (market value) to sales guys. This is more than three times higher than the MO S&P 500 index fund direct plan expense ratio.
Context: We will only review the US Bluechip fund in this article. Other considerations such as (1) should I invest in international mutual funds or can I simply buy a fund like Parag Parikh Long Term Equity Fund (2) Will 10% exposure to US Equity make a difference to my portfolio? Or should I add 20%? Is it necessary to rebalance such small exposure? (3) What return can I get from the &P 500? Have been discussed before:
- International mutual funds: Should I invest in them?
- How much US stocks should your portfolio hold?
- This is how buying US stocks will affect your portfolio
- Motilal Oswal S&P 500 Index Fund: What return can I expect from this?
ICICI Prudential US Bluechip Equity Fund Performance Analysis
Let us start the analysis with a comparison of the S&P 500 TRI index (USD) with the S&P 500 TRI index (INR) and the USD-INR exchange rate.
Next, the since inception performance of ICICI US Bluechip Fund compared with S&P 500 TRI (USD) and S&P 500 TRI (INR) and the USD-INR exchange rate is shown below. The importance of benchmarking the fund with the S&P 500 in INR and not USD is clearly seen below.
Next, the three-year rolling return comparison of ICICI US Bluechip Fund and S&P 5000 TRI (INR). There are 1085 3Y return data points in each line. The fund has outperformed the index only a handful of times.
The Five-year rolling return comparison of ICICI US Bluechip Fund and S&P 5000 TRI (INR) also paint a similar story. Only this year the fund has managed an index-like return.
The Three-year and Five-year rolling standard deviation (volatility) comparison of ICICI US Bluechip Fund and S&P 5000 TRI (INR) is shown below. There is not much difference between the two.
The only positive aspect of ICICI Bluechip is a lower drawdown (fall from peak). The evolution of the max fall is shown below. During the 2020 crash, the fund fell significantly lower than the index.
Let us consider the pros and cons of investing in ICICI Bluechip.
Disadvantages: Huge expense ratio with incommensurate performance. Inability to beat the index.
Advantages: Less concentrated portfolio. Lower drawdown during a major crash.
Caveats: The S&P 500 has seen a fairly smooth upward movement during the entire tenure of the fund. Any fund that is not heavy in the top-10 stocks of the index will have a tough time beating it.
Considerations: Is the better drawdown of the US Bluechip worth its 3X-plus fee? Considering the investment tenure is 10-years plus for these funds, the answer will have to be a ‘no’
Summary: Leaving aside the reason for investing in “international equity” (which means US equity because past performance is “good”), if you wish to choose between ICICI US Bluechip Equity and Motilal Oswal S&P 500 Index Fund, then the index fund makes sense. However, the investor may have to face higher drawdowns.