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Citrus Analysis: ICICI Pru Banking & Fin Serv Fund: On the ascending curve
Thu, Dec 13, 2012
Source : Jeni Shukla, Citrus Interactive

ICICI Prudential Banking and Financial Services Fund is a sector-specific fund which mainly invests in companies in the banking and financial services industry. The fund was launched in August 2008. According to its latest disclosure the fund has assets under management worth Rs. 155.57 crores.

Currently there are eight schemes which fall in the category of ‘banking and financial services funds’.

Fund Performance

 

YTD

1 - YEAR

3 - YEAR

SINCE INCEPTION

ICICI Pru Banking & Fin Serv Fund(G)

65.79

52.26

14.23

20.19

BSE BANKEX

52.42

41.50

11.57

18.74

All figures are in %, as on November 30, 2012; One-year and above returns in CAGR

The fund has beaten its benchmark by a reasonable margin year-to-date (YTD), and over the one-year and three-year periods. It has also done better than its benchmark in terms of its performance since inception. According to the fund manager, Venkatesh Sanjeevi: “The outperformance this year is due to three reasons. Firstly, till about August the fund was focusing on private sector banks. We were significantly underweight on PSU banking sector names. That gave us alpha in the first part of the year. Secondly, towards later part of the year we selectively increased exposure to PSU banks. Thirdly, private sector NBFCs which form significant part of our portfolios performed really well this year.”

In terms of performance relative to its peers, it is the top ranking fund in terms of YTD and one-year returns in this category. It ranks second in terms of three-year performance.

 

2011

2010

2009

ICICI Pru Banking & Fin Serv Fund(G)

-31.61

32.78

74.61

BSE BANKEX

-31.59

33.39

79.60

 

In terms of calendar year returns the fund lags behind its benchmark in all the three calendar years of its existence. However, one can say that the fund has gotten better with time as the margin of underperformance has reduced over time and it has managed to beat the benchmark by a reasonable margin year-to-date.

Investment Philosophy and Approach

According to the Scheme Information Document (SID), the objective of the scheme is “to generate long-term capital appreciation to unitholders from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services.” The fund is mandated to invest at least 70 per cent of its assets in equity and equity related instruments of banking and financial services companies.

According to the fund manager, “The fund is benchmarked against the BSE Bankex. The objective is to outperform the BANKEX. The universe is all the stocks which have predominant portion of their incomes coming from the banking and financial services space. This includes banks, NBFCs, insurance companies, rating agencies and brokerage houses. The approach is largely bottom-up although the top-down views are also considered. We look for growth stocks at a reasonable valuation.”

Portfolio Characteristics

Number of equity holdings. Currently the fund has 20 stocks in its portfolio which is equal to the category median. Its monthly average stock count since inception has been 15.

Company Concentration. The fund’s concentration to the top three, five and ten companies is lower than the category median.

 

Top 3

Top 5

Top 10

ICICI Pru Banking & Fin Serv Fund(G)

45.07

58.46

77.47

Category Median

45.35

59.32

80.76

 

Turnover Ratio. As per the SID, the portfolio turnover shall generally not exceed 200% per year. The turnover ratio of the fund is 66 per cent which is lower than the category median of 70 per cent as at the end of September 2012 (We have used September end because that is the latest period in which all funds in this category made disclosures of their turnover ratio). It has averaged 67.9 per cent year-to-date (YTD).

 

Expense Ratio. The expense ratio of the fund is 2.44 compared to the category average of 2.4.

Risk Measures. In terms of risk measures such as beta and standard deviation (measured over the last three years) the fund has a higher risk level compared to the category median.

 

Beta

Standard Deviation

ICICI Pru Banking & Fin Serv Fund(G)

1.0767

1.3552

Category Median

1.0695

1.3483

 

Risk-adjusted Returns. In terms of risk-adjusted returns like Sharpe ratio and Treynor ratio (measured over last three years) the fund has a higher risk-adjusted return than the category median.

 

Sharpe Ratio

Treynor Ratio

ICICI Pru Banking & Fin Serv Fund(G)

0.0461

0.0457

Category Median

0.0432

0.0414

 

Portfolio Strategy

2011. In 2011, the fund generated a return of -31.61 per cent which is very close to the -31.59 per cent return by BSE Bankex.

By December 2011, the fund was invested 76.30 per cent in large caps, 15.40 per cent in mid caps and 8.30 per cent in cash.

Sector

January 2011 (%)

December 2011 (%)

Raised/lowered allocation (%age points)

Banks

81.76

92.89

11.13

Finance

9.94

2.12

-7.82

 

In the calendar year the fund increased its allocation to banks and lowered its allocation to the finance sector.

Company

January 2011 (%)

December 2011 (%)

Raised/lowered allocation (%age points)

IDFC Ltd.

 

3.55

3.55

Bank Of Baroda

4.26

7.65

3.39

Standard Chartered PLC

2.88

5.73

2.86

Sundaram Finance Ltd.

2.12

4.49

2.37

IndusInd Bank Ltd.

4.87

6.38

1.51

Union Bank Of India

3.12

3.08

-0.04

ICICI Bank Ltd.

21.10

20.84

-0.26

HDFC Bank Ltd.

13.62

11.73

-1.88

State Bank Of India

10.54

7.18

-3.36

Axis Bank Ltd.

12.82

8.68

-4.14

 

During 2011 the fund increased its exposure to IDFC, Bank of Baroda, Standard Chartered, Sundaram Finance and IndusInd Bank. It lowered its exposure to Axis Bank, State Bank Of India, HDFC Bank, ICICI Bank and Union Bank of India.

Fund vs. Benchmark – December 2011

Company

Fund (%)

BSE BANKEX (%)

Over/under weight (%age points)

Standard Chartered PLC

5.73

 

5.73

Bank Of Baroda

7.65

2.99

4.66

Sundaram Finance Ltd.

4.49

 

4.49

IDFC Ltd.

3.55

 

3.55

IndusInd Bank Ltd.

6.38

3.20

3.18

Union Bank Of India

3.08

1.27

1.81

Axis Bank Ltd.

8.68

7.91

0.77

State Bank Of India

7.18

12.51

-5.33

ICICI Bank Ltd.

20.84

27.26

-6.42

HDFC Bank Ltd.

11.73

28.86

-17.13

 

By the end of the calendar year, the fund was overweight its benchmark on companies like Standard Chartered, Bank of Baroda, Sundaram Finance, IDFC, IndusInd Bank, Union Bank of India and Axis Bank. It was underweight compared to its benchmark on companies like HDFC Bank, ICICI Bank and State Bank of India.

2012. Year-to-date (till November 30, 2012) the fund outperformed the benchmark significantly. It yielded 65.79 per cent against BSE Bankex’s 52.42 per cent returns.

By November-end, the fund has 89.92 per cent exposure to large caps, 7.18 per cent exposure to mid caps and 2.91 per cent cash holding.

Says the fund manager: “Usually upwards of 60 per cent of the portfolio is in the large cap space. However, it is flexible.  If there are investment opportunities in the mid cap space which we feel will give very good returns we will be aggressive on those but none of them will be above 10 per cent of the portfolio.”

Sector

January 2012 (%)

November 2012 (%)

Raised/lowered allocation (%age points)

Industrial Products

 

3.20

3.20

Banks

79.61

82.73

3.11

Finance

9.73

11.16

1.44

 

By November-end, the fund has increased its allocation to industrial products, banks and finance. It has lowered its cash allocation.

Company

January 2012 (%)

November 2012 (%)

Raised/lowered allocation (%age points)

HDFC Bank Ltd.

10.76

21.17

10.41

State Bank Of India

5.96

10.54

4.58

Mahindra & Mahindra Financial Services Ltd.

2.53

6.40

3.87

Yes Bank Ltd.

1.17

3.87

2.69

Federal Bank Ltd.

1.95

3.81

1.85

Oriental Bank Of Commerce

2.17

3.88

1.71

IndusInd Bank Ltd.

6.56

6.99

0.43

Union Bank Of India

4.10

4.05

-0.06

ING Vysya Bank Ltd.

3.81

3.41

-0.40

ICICI Bank Ltd.

21.85

13.37

-8.48

 

Among its top holdings this year the fund increased its allocation to HDFC Bank, State Bank of India, Mahindra & Mahindra Financial Services, Yes Bank, Federal Bank and Oriental Bank of Commerce. It lowered its exposure to ICICI Bank, ING Vysya Bank and Union Bank of India.

Fund vs. Benchmark – November 2012

Company

Fund (%)

BSE BANKEX (%)

Over/under weight (%age points)

Mahindra & Mahindra Financial Services Ltd.

6.40

 

6.40

Oriental Bank Of Commerce

3.88

 

3.88

IndusInd Bank Ltd.

6.99

3.21

3.78

ING Vysya Bank Ltd.

3.41

 

3.41

Union Bank Of India

4.05

1.27

2.78

Federal Bank Ltd.

3.81

1.79

2.02

Yes Bank Ltd.

3.87

2.59

1.28

State Bank Of India

10.54

12.79

-2.25

HDFC Bank Ltd.

21.17

28.08

-6.91

ICICI Bank Ltd.

13.37

27.49

-14.12

 

By November-end, the fund is overweight compared to its benchmark on stocks like Mahindra & Mahindra Finance, Oriental Bank of Commerce, IndusInd Bank, ING Vysya Bank, Union Bank of India, Federal Bank and Yes Bank. It is underweight on stocks like ICICI Bank, HDFC Bank and State Bank of India.

Says Venkatesh: “Currently the view is that private sector banks form the core of the portfolio. With interest rates coming down there will be opportunities in the public sector banks too.”

Fund Manager

The fund is managed by Venkatesh Sanjeevi since February 2012. He also manages the ICICI Prudential MIP 25 Fund. He has an experience of five years in equity research. This year’s positive returns reflect positively on the fund manager.

Conclusion

The fund has emerged as a winner in this category in recent times. An investor keen on taking exposure to the banking and financial services sector can surely consider this fund. However, one must keep track of changes at the helm.
 
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