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ICICI Prudential Business Cycle new fund offer review: Should you invest?

ICICI Prudential Business Cycle Fund will select a set of sectors first based on its reading of the economy and pick companies within those segments

January 12, 2021 / 09:14 AM IST

As with many in the investment world, ICICI Prudential Mutual Fund believes that an economic recovery is around the corner. And as if to reiterate its confidence in the revival, it has rolled out a new ICICI Prudential Business Cycle Fund (IPBCF). The fund’s NFO closes today, January 12, though it is an open-ended fund. Should you invest in it?

What is it about?

IPBCF is thematic equity fund that will invest in sync with economic cycles. This new fund will first identify sectors that are expected to do well, before zeroing in on the right stocks. This is the top-down approach.

Co-fund manager Anish Tawakley says that India appears to be on a recovery path and a top-down approach will play a crucial role in identifying which companies would do well. Interest rates have already fallen and aren’t likely to decline further. India’s recovery rate in COVID-19 cases has also been better in recent times. Anish says that global growth is expected to take some time and this puts India in a good spot. ICICI Prudential mutual fund believes that a recovery in capital expenditure is to be expected; sectors such as metals, banks, capital goods and infrastructure should do well.

What works

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ICICI Prudential Mutual Fund is typically good in reading the macro-economic situation and weaving it into its fund management. Whether it’s the overheating of the infrastructure sector in 2007 or the need for diversification in global equities in the last decade, the fund house has got quite a few of its macro calls right. Understanding the macro environment as accurately as possible will be crucial for IPBCF’s success, as a significant chunk of its portfolio will be concentrated around these four to five sectors. The scheme promises to be well-diversified.

The fund would be benchmark agnostic. Although by law it is required to have a benchmark – Nifty 500 Total Returns Index (TRI) in this case – it can avoid some sectors completely that are a part of its benchmark index. This can work against the fund, if calls go wrong. But if the macroeconomic reading is correct, the fund manager is free to pick up suitable sectors and not stick to some segments just because they are present in the benchmark index. This is one of the bigger flaws in open-ended diversified equity funds, as fund managers are compelled to hug/replicate their benchmark indices.

What doesn’t

The fund is among the riskiest of all equity schemes. Reading of economic parameters and picking good companies from within the shortlisted sectors would requires many factors to work well. To mitigate its risks, IPBCF has three fund managers, including Manish Banthia who is a debt fund manager, for macroeconomic studies.

Some financial planners say that the fund doesn’t offer much differentiation from many existing schemes already in the market. “Other funds also use similar factors while picking stocks. There is no reason why this scheme should be preferred over other existing schemes with track records,” says Suresh Sadagopan, founder of Ladder 7 Financial Advisory.

A lack of track record hurts almost all news schemes, but especially IPBCF, since it caters to high-risk high-return investors. Identifying the sectors that are expected to do well, finding companies thereafter and being nimble-footed enough to change not just companies but also sectors when the economic direction changes, makes this scheme a highly risky one. The fund aims to hold not more than 20 percent in cash at all times, but it would typically be fully invested. Having no track record doesn’t lend much comfort as of now.

What should you do?

The list of new schemes just goes up, especially in the thematic space. Since the start of 2014, this would be ICICI Prudential mutual fund’s 16th equity scheme launch. Couldn’t it have just rebranded an existing scheme?

Anish says that wasn’t possible. ICICI Prudential Multicap Fund (IPMF) is expected to continue being a multicap fund. The fund house may well launch a new flexi-cap fund later. Anish says that IPMF’s strategy is different from that of IPBCF. Hence, the fund house says it chose to launch IPBCF as a separate and thematic fund.

That said, novice investors should stay away. Those starting on their MF investments must also stay away. IPBCF is meant for investors with a high risk appetite, and understands the economy and stock markets well.
Kayezad E Adajania
Nikhil Walavalkar
first published: Jan 12, 2021 09:14 am

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