Value investing is an investment strategy that involves picking stocks that appear to be trading at less than their intrinsic or book value. There have been mutual fund schemes adhering to this philosophy that have done well in the past by adhering to this strategy, but of late, they seem to have slipped, and badly at that. Two such funds that come to mind are ICICI Prudential Value Discovery Fund and Aditya Birla Sun Life Pure Value Fund.
ICICI Prudential Value Discovery Fund with an AUM of about `15,450 crore used to be one of the top performing funds on a regular basis, till its performance slipped and the recovery has since, been slow in coming. Amongst other things, there seems to have been a correlation between its AUM size bloating and its performance slipping. The fund follows a bottom-up investment approach along with a blend of strategies like value and dividend yield. It has recently increased its exposure to the pharmaceutical and transportation sectors and seems relatively overweight on the power sector. Its portfolio comprises about 50 stocks with large-caps forming around 78 per cent, mid-caps forming about 18 per cent and small-caps forming about 4 per cent.
This fund, the largest fund in the value-oriented category, has been under performing its benchmark (BSE 500) over the last 1, 3 and 5 years. Its current portfolio P/E stands at 19.6 and P/B at 3.6 on a trailing basis.
Aditya Birla Sun Life Pure Value Fund has an AUM of `4,279 crore. This fund has a track record of over 10 years and follows a top down and bottom up approach for stock selection across market capitalisations. This fund had a 90 per cent exposure to small-caps in 2018, which it has unwound having felt the heat of the correction in that segment. Its portfolio now comprises around 75 stocks with large-caps forming about 40 per cent, mid-caps forming about 25 per cent and small-caps forming about 35 per cent. Notably, its top 10 stock holdings account for about 30 per cent of the portfolio with the highest single stock exposure at about 8 per cent. Its sectoral allocation primarily comprises consumer non-durables, construction projects, petroleum products and chemicals and pharmaceutical.
The fund also focuses on the deployment of 10-20 per cent of its portfolio in firms with strong brands as it believes that the current market value doesn’t fully price in the intangible values of brands. Notably, its Portfolio Turnover Ratio stood at 150-170 per cent, which is definitely higher compared to its peers and suggestive of higher churn. Its current portfolio has a P/E of 16 and P/B of 1.8 on a trailing basis. As mentioned above, two funds were once ‘performing’ funds, it may be premature to write them off based on their unimpressive performance track record over the last few years. The question though remains that – can they pullback and perform like in their prime? The ICICI fund, for one has its task cut out with its relatively large AUM. But, in life nothing is impossible.
Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com