Discovering The Right Values

It’s impossible to time the market, but it’s possible to find the right price in the market. And that is what one should do and make it a norm while investing in the stock markets. The formula of making profits here is simple: buy low and sell high. And ‘value investing’ is an investment philosophy that is successfully followed by many investment gurus like Warren Buffet and also by his guru Benjamin Graham. It believes in buying stocks below its intrinsic value and that is what this fund does. Launched in August 2004, the fund follows the value style of investing without any market-cap bias. The value style is less risky compared to the growth style of investing. However, value stocks may take more time to unlock their actual potential and thus one should invest with a longer horizon in the value funds. We selected this fund on account of its exceptional performance in the one-year period. It has outpaced the category returns by a mammoth 2020 basis points. However, the three-year performance isn’t that good, wherein it has beaten the category by a mere 36 basis points. The fund in its early days did well. However, it has had a rough patch since then. And recently it seems like it has discovered value and done remarkably well.

Over last few months, the fund was primarily invested in the large-cap and mid-cap stocks. However, in July 2009, the fund in totality invested 63 per cent of its equity portfolio in the small-cap and mid-cap companies. Such market-cap allocation largely increases the volatility and risk of the fund. On the sectoral allocation front, the top three sectors were pharma (17.34 per cent), banks (14.21 per cent) and IT (7.68 per cent). These three sectors have remained in the top three over the past few months. However, in July the fund increased its exposure in banks and at the same time reduced exposure in the IT stocks.

Out of its portfolio of 34 stocks, the top ten stocks contributed almost 50 per cent of the total assets, resulting in higher portfolio concentration. The fund seems to be taking active cash calls, considering that its cash holding and equivalent holding which stood at almost 5 per cent in April has increased to 10 per cent in July. Such cash allocation seems to have fuelled the fund’s performance in the recent times. The portfolio seems to have gone aggressive considering the market-cap and stock allocation. However, the sectoral allocation and cash holding slightly reduces the portfolio’s risk. From October 2005, S Naren has been managing this fund. However, the fund has been a middle-of-the-road performer since then. Naren, who has over 18 years’ experience in fund management, research and operations, manages five funds at ICICI AMC. Most of these funds have managed to outperform the category over the long run. Thus, looking at the fund’s inconsistent track record over the years, the fund manager’s overall proficiency and the asset allocation, we suggest moderate risk investors to take only limited exposure in the fund.