Morningstar believes ICICI Prudential Value Discovery Fund has the wherewithal to outperform its benchmark index over the long term.
The presence of a skilled manager and robust investment approach warrants an upgrade for this fund from bronze to silver, Morningstar India said in a report.
A Silver rating means Morningstar thinks the fund has significant advantages. These lead its analyst to have high conviction the fund can outperform peers over a market cycle.
Over time, Mrinal Singh has emerged as a skilled portfolio manager. Singh, who started his stint with ICICI Prudential AMC in June 2008 as an equity analyst, took over a technology sector fund in August 2009.
In February 2011, when he took over here, it was his first stint running a diversified fund.
Since then, we have had the opportunity to evaluate him and his investment approach across market cycles, enabling us to build confidence in him. While Singh specialises in value investing, he is also an expert in the small/mid-cap segment, an area where he gained extensive experience as an analyst.
Singh runs ICICI Prudential Value Discovery Fund with a valuation-conscious approach, investing in stocks that he believes are trading at a significant discount to their fair value. Until mid-2014, Singh invested predominantly in the small/mid-cap segment.
However, since then, this aspect of the strategy has undergone a change; the allocation to large caps has increased significantly (from roughly 25% earlier to nearly 70% as of August 2016).
During our interaction with the fund house, the investment team maintained that the fund has always been positioned as a flexicap fund; hence, the increased allocation to large caps is consistent with the positioning.
Nonetheless, the modified approach is a departure from the manner in which the fund was run earlier. Also, recently the fund house changed the fund’s benchmark index from CNX Midcap to S&P BSE 500.
In our opinion, this change can be attributed to two factors: stretched valuations in the small/mid-cap segment and a surge in assets to Rs143.6 billion as of August 2016 from Rs35.3 billion as of April 2014.
Despite the change, what continues to work for the fund is the presence of Singh and his robust investment approach. We continue to draw confidence from his stock-picking skills and ability to execute the strategy with skill.
We believe the fund has the wherewithal to outperform its benchmark index over the long term. Hence, we upgrade the fund from a Morningstar Analyst Rating to Silver from Bronze.Disclaimer: The views and investment tips expressed by Morningstar investment expert on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decision.