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Morningstar: Mutual Fund Guide

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Morningstar: Mutual Fund Guide
Morningstar India - 06 February 2021

ICICI Pru Medium Term Bond

Investment Strategy

ICICI Prudential Corporate Bond Fund was renamed as ICICI Prudential Medium Term Fund in 2018. Manish Banthia, who has been the comanager here since November 2016, now leads the fund. The investment team on the credit side is experienced and has a well organised structure with defined responsibilities.

Manish Banthia emphasises security selection and portfolio construction over making substantial adjustments to the duration on a regular basis. The team prefers investing in stable companies having higher certainty of returns than targeting uncertain higher returns. Hence, fundamental research is the key to the investment process and combines qualitative aspects with quantitative analysis. The focus is on investing in companies that have strong management teams with proven track records, the financial strength of the promoter group, and good corporate governance standards. This is followed by rigorous quantitative analysis in which various financial ratios are considered. A credit is added in the investment list only after getting approval from the board and the risk management team. The idea is to focus on achieving long-term sustainable and consistent performance, rather than chasing short-term trends. Duration calls are taken after considering macroeconomic factors such as gross domestic product, inflation, and RBI borrowings.

Despite the flexibility to invest across the credit spectrum, Manish Banthia ensures that its inherent framework remains intact. That said, he doesn’t rule out the possibility of using this flexibility as a tactical play at an appropriate time.

Franklin India Prima Fund

Manager Biography And Fund Strategy

R. Janakiraman has helmed this fund since February 2011. With a research experience spanning over 21 years, he is the designated small/mid-cap specialist with the fund house and manages its small/mid-cap strategies. Thus, he uses his domain experience to the hilt in managing this fund.

Fundamental research forms the crux of the investment process. The coverage list for small/mid-caps is built by the portfolio managers in conjunction with the analysts. The investment team places strong emphasis on qualitative aspects such as managerial strengths and corporate governance; also, rigorous business analysis is performed to understand the growth prospects of the industry, its competitive landscape, entry barriers, and scalability prospects. R. Janakiraman selects companies that can generate consistent and sustainable earnings growth over a business cycle and have low leverage and reasonably high ROEs. He is aware that it is difficult to forecast earnings in small/mid-caps, hence, he uses historical five-year data as a yardstick to project five years ahead. He is not very rigid on valuations, so long as the company fulfils his investment criteria. That said, the strategy is not without risks. A valuation-conscious approach and the manager’s inability to play momentum will hold the fund back during speculative or bull markets. Although the strategy has the potential to deliver superior performance over the long haul, it is tagged with inherent biases along with higher volatility.

R. Janakiraman’s investment process is visible in the portfolio construction. His benchmark-agnostic approach coupled with his bottom-up stock-picking results in a portfolio that is distinct from that of the benchmark index or peers. He plies a predominantly mid-cap strategy with exposure to mid-cap stocks typically falling in the range of 70%-80%. Janakiraman invests in large-cap stocks primarily in sectors where he is unlikely to find good-quality mid-caps. He continues to avoid investing in companies having excessive leverage in their books.

Kotak Bluechip Fund

Manager Biography And Fund Strategy

Harish Krishnan has been managing this fund since January 2014. He has five years of experience as an analyst and about four years of experience in managing offshore funds. An eight-member analyst team with an average experience of eight years supports the portfolio manager.

Harish Krishnan’s growth-at-a-reasonable-price strategy uses the model portfolio created by the analyst team as his initial reference while choosing stocks. The model portfolio is compiled from sector-based portfolios prepared by analysts, who use a combination of quantitative models using relevant ratios, such as price/book value, P/E, EV/EBITDA, and so on, and other valuation methodologies such as replacement costs and discounted cash flow models to evaluate stocks. Krishnan runs a few broad themes across this fund and applies a qualitative overlay, investing in the top companies in each sector that have sustainable and scalable businesses, that have good management capabilities, and that trade at reasonable valuations. A combination of top-down and bottom-up approaches is evident and is used to determine underweight/overweight positions versus the benchmark. Krishnan maintains a core portfolio (70-80% of assets), with holdings largely coming from the benchmark, while the rest is used for tactical plays, making the portfolio predominantly aligned to the benchmark.

Some of the current themes centre on identifying sector leaders, defined as the top two businesses in each sector in terms of revenue, market cap, or margin profile. This forms the core portfolio with sector allocations driving incremental returns. Portfolio allocation to small/ mid-caps is typically maintained in the range of 10-15% based on valuations.

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