Fund call. ICICI Pru Long Term Equity: Scoring well on consistency

With the financial year coming to a close in a month,Equity Linked Savings Scheme (ELSS) may be a good way to diversify your investment. ICICI Prudential Long Term Equity is one that boasts of a consistent performance record in this category.

However, given that ELSS schemes, in general, have a three-year lock in, this will suit investors with a five-year horizon and a moderately high risk appetite. The fund scores well on consistency. In the last five years, the scheme’s one-year return has been better than its benchmark — Nifty 500 Index almost 90 per cent of the time.

In the past, the fund has been able to contain downsides well during weak phases. For instance, during the January-August 2013 period, the scheme lost less than 14 per cent, compared with an almost 17 per cent fall in its benchmark. Reducing exposure to cyclical themes such as financials and loading up on less-volatile pharma and IT helped. The fund’s strategy to stay away from momentum stocks has also helped performance.

Likewise, during rally phases too, the fund has managed to deliver benchmark-beating returns. Consider the September 2013-April 2015 period. The fund’s NAV almost doubled even as the benchmark rose by about 80 per cent. Ability to move quickly into cyclical themes aided the sharp recovery.

Besides right stock and sector shifts, flexibility to shift across market cap curves and a low expense ratio (2.3 per cent) compared with peers Franklin India Taxshield (2.48 per cent) and Principal Tax Savings (2.56 per cent) also aided performance.

Over three, five and ten-year time frames, the fund has delivered returns 4-5 percentage points higher than its benchmark. However, the fund’s one-year performance has not kept pace with its benchmark — Nifty 500 Index. Given the higher-than-benchmark exposure to pharma stocks, the sharp correction in these stocks in the last three months impacted the scheme’s performance. IPCA Laboratories and Alembic Pharma held by the fund, dropped 14-16 per cent.The fund added large cap pharma stocks — Sun Pharmaceuticals and Lupin — during this period. The weakness in the former, following a muted performance in the December 2016 quarter did not help.Other stock bets that hurt performance include Orient Cement, Thomas Cook, Container Corporation and Infosys. These stocks shed 7-25 per cent. George Heber Joseph took charge as fund manager in November 2015; the fund’s performance from November 2015 till date has been in line with its benchmark.

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