ICICI Prudential Value Discovery Fund Performance Review

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This is a performance review of ICICI Prudential Value Discovery Fund, one of the best-known value-oriented funds in the country. The fund has had a poor run in the last few years and has got many of its investors worried. This fund is partly why Sankaran Naren made a name for himself – he was the fund manager up to Feb 2011. Like we have been doing for the past few weeks, let us compare the risk and reward performance of value discovery with equity indices and also hybrid funds.

 ICICI Prudential Value Discovery Fund: Investment Strategy

In my opinion, this is one of the best-name funds! “Value discovery”, love that!. According to the AMC, it identifies stocks that are available at a price lower than their intrinsic value. This is defined in terms of quantitative parameters like a low price to book value, low price to earnings ratio, high dividend yield – measured among peers and qualitative assessment of the business such as “management competitiveness, business competitiveness and growth prospects”

The universe of stocks for this Scheme will be defined as those stocks whose prices are low relative to their fundamentals, their historic performance, their book values, their earnings and cash flow potential and current and/or future dividends.

I am glad that after the SEBI recategorization, the scheme had not changed it strategy and only became a more explicit value styled fund (see link above, page 10). The 0-20% bond allocation has now changed to 0-35%. Unlike funds like ICICI multi-asset and ICICI balanced advantage, this fund will not adopt a tactical asset allocation strategy based on market price to book value.

ICICI Prudential Value Discovery Fund can invest across market cap but has off late been known as a largecapish fund.

ICICI Prudential Value Discovery Fund Performance Review

Recent performance

The last three-year performance (screen grab from Value Research) of ICICI Prudential Value Discovery Fund is shown below. Now, that does not look great.

ICICI Prudential Value Discovery Fund vs NIfty 500

However, what we see above is only one 3Y return data point ( calculated using the start and end points), we need to dig deeper using rolling returns.

Benchmarks for the reviewing ICICI Prudential Value Discovery Fund

  1. Nifty 500 Total Returns Index (TRI, meaning dividends are treated as reinvested). This is the fund benchmark.
  2. Nifty 100 TRI – a large cap benchmark
  3. Nifty Large Midcap 250 TRI. This is Nifty 100 + Nifty Midcap 150. MOST is coming up with an index fund for this. As the top half of Nifty 500, it is a suitable benchmark in my opinion.
  4.  ICICI Pru Equity & Debt Fund (balanced fund). This was review earlier: ICICI Prudential Equity & Debt Fund (ICICI Balanced) Performance Review This will serve as a medium risk, good reward benchmark.
  5. ICICI Balanced advantage fund, also reviewed earlier: ICICI Prudential Balanced Advantage Fund : Performance With Low Volatility This will serve as a low risk, reasonable reward benchmark.

Rolling return and rolling risk: 3 years

So in what follows, we shall study every possible 3,5 and 10-year return and risk for ICICI Prudential Value Discovery Fund and the five benchmarks listed above.

three year rolling return for ICICI Prudential Value Discovery Fund and benchmarks

Notice the dip in performance recently. You need to get used to all the coloured lines for a bit!

Three year rolling risk for ICICI Prudential Value Discovery Fund and benchmarks

The risk outperformance of the fund has also dropped in the last couple of years.

Rolling return and rolling risk: 5 years

five year rolling return for ICICI Prudential Value Discovery Fund and benchmarks

That is decent aside from a small dip recently and the same can be seen below.

Five year rolling risk for ICICI Prudential Value Discovery Fund and benchmarks

Rolling return and rolling risk: 10 years

ten year rolling return for ICICI Prudential Value Discovery Fund and benchmarks

That is fantastic!

ten year rolling risk for ICICI Prudential Value Discovery Fund and benchmarks

Again, good consistent, low risk.

ICICI Prudential Value Discovery vs Quantum Long Term Equity

Quantum Long Term Equity also adopts a value investing style although I don’t think it is a pure value fund like Discovery.

ICICI Prudential Value Discovery vs Quantum Long Term Equity rolling return 10 years

ICICI Prudential Value Discovery vs Quantum Long Term Equity rolling risk 10 years

That is fantastic outperformance by Value Discovery for similar risk. Ignore the vertical line in the QLTE curves, the NAV for a date is missing.

Video version of the review

Summary

Please take a moment to study the graphs above. ICICI Prudential Value Discovery Fund has a fantastic 5, 10-year record. Its recent performance has dipped and that is worrisome. No one can tell if the fund will recover its past outperformance or not.

If you look at the return graphs, notice that Value discovery is a lot more volatile in returns than the other two ICICI funds. If you are someone who likes steady returns even though a bit low, then Value discovery is not for you. Investing in this fund will require a long term commitment. Existing investors can continue to hold and watch for a little more.

New investors should understand what they are getting into. The fund has delivered better returns than Nifty 500 or Nifty 100 at lower risk and there is not much more that one can ask from it!

Another issue is, how much of a portfolio should be value-oriented. This is a tough question in general but, a fund like this can even part of a core holding if the investor is patient enough. For the impatient investor or for someone who cannot stomach volatility, an aggressive hybrid fund would be a better option.

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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4 Comments

  1. being a long term investor in this fund, certainly in need of this review due to the recent poor performance. As usual, got in depth analysis. Thanks a lot.

  2. @PattuSir,

    A few clarifications:

    1. Why do think and use STD deviation as a measure of ‘risk’ for a volitle instrument like equity ?Correct me if I’m wrong, but you seem to be inferring ‘risk’ from statistical volatility of the returns. Why?

    2. STD deviation penalises both upside out-performance and downside under-performance as the same.

    3. So how does it really measure ‘risk’ ? It only measures statistical deviation from the mean.

    4. As an investor upside out-performance (desirable for many) is not perceived with the same negative connotation as downside under-performance (which is the real ‘risk’).

    5. There are better measures that capture risk.

    WDYT ?

  3. Sir can you please compare the ICICI Pru value discovery fund with Invesco India contra fund?

    The alpha value of the ICICI prudential value discovery fund is what is bothering me. I am thinking of starting investment of 5 years or longer in one of the 2 funds

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