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1
Role of Fund Manager:
Investing For PFs In
Equity Market
Mr. Yogesh Bhatt
Senior Fund Manager
August 3, 2016
2
Equity: Best asset class for next 2-3 years
Market Outlook
3
Benign Inflation
May-16 CPI: 5.76%
May-16 WPI: 0.79%
Low Current Account Deficit:
1.1% of GDP in FY16
Low Fiscal Deficit:
3.5% of GDP in FY17E
Government Reforms
Limited Trade Exposure: About 3.5% of Indian exports and 1.5% of imports are from the UK
Foreign Exchange Reserves: Over $360 billion
Source: Bloomberg
Fundamentals that keep India Insulated if UK exits the EU
India Remained Insulated to BREXIT
4
Marketcap to GDP Below Long Term Average
0
20
40
60
80
100
120
140
160
38412
38504
38596
38687
38777
38869
38961
39052
39142
39234
39326
39417
39508
39600
39692
39783
39873
39965
40057
40148
40238
40330
40422
40513
40603
40695
40787
40878
40969
41061
41153
41244
41334
41426
41518
41609
41699
41791
41883
41974
42064
42156
42248
42339
42430
42522
Mcap To TTM GDP
Marketcap to GDP @ 72%;
7% below Long Term Average
Long Term Average 79%
Source: Bloomberg; Data as of June 30, 2016;
Whenever Marketcap to GDP levels are low invest in equities
5
Largecaps Better Play Than Midcaps
Data source: CITI Research, <$4bn is considered as representing midcap companies.
Earnings growth in large-caps companies have been higher than mid-cap
companies.
6
Catalysts For Bull Market In Next 2 – 3 Years
• Increase in capacity utilization (CU) to help topline in near term
Operating Leverage
• This will pull down interest rates and help capex once CU improves
Deleveraging in Real Estate
• FDI gates have been opened in several sectors recently
Government Policies
FDI – Foreign Direct Investment
7
Our View
India’s macro-economic environment has become stable.
Currency has shown stability with Foreign Exchange Reserves growing to over US $360
billion
Low commodity prices and government's policies are expected to result in Low Fiscal
Deficit of 3.5% of GDP in FY17E
Stable macros can keep India fundamentally insulated from any material impact from
global risk off events in the long run.
At micro-level too there are expectations of improvement.
The combined effect of 7th pay commission and good monsoon could result higher
discretionary spending during the festival period and provide boost to earnings.
India remains a bright spot among its peers and looks attractive on most of the parameters
such as Marketcap to GDP, expected growth rate, macro stability and proactive government
policies.
We believe equities shall be the best asset class over the next 2 to 3 years and investors could
continue to invest with a long term view.
8
Investment Options
9
Active Vs Passive Funds
• Active funds help identifying stocks at early stage of growth and hence are able to
generate alpha
• Indian Markets are relatively in-efficient compared to their counterparts in developed
markets
• In-efficient market provides scope for identifying alpha bets
• Hence, active funds dominate AUM share in India vis-à-vis in developed markets.
• Out of the total Equity AUM for June 2016, 93.9% constitute actively managed funds
and 6.1% constitute passive funds (Index and ETF)
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Setting investment objective
Formulating investment plan based on investor‘s need
Establishment of portfolio strategy
Role of Fund Manager: For Active Return
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Equity Investments shall be timed based on market valuations
One should consider investing aggressively when market valuations low
Conversely, invest systematically when markets valuations are high
Equity Investment Strategy
12
40
90
140
190
240
290
340
390
440
May/2008 Jul/2009 Sep/2010 Nov/2011 Jan/2013 Mar/2014 May/2015 Jul/2016
ICICI Prudential Focused Bluechip Equity Fund - Ret - Growth ICICI Prudential Value Discovery Fund - Growth S&P BSE Sensex
ICICI Prudential Value
Discovery Fund
19.81% CAGR
ICICI Prudential
Focused Bluechip
Equity Fund
15.11% CAGR
S&P BSE Sensex
6.57% CAGR
Value rebased to 100
Value Addition by Fund ManagerMay ‘08 to Jul ‘16
13
Book Profits/ Stay Invested
Invest Systematically
Invest in Equities
Aggressively Invest in Equities
Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec
– Government Securities. GDP – Gross Domestic Product; Data as on July 26, 2016
Our equity valuation index indicates that investors should
invest systematically in equities.
Composite Index, 102.20
0
20
40
60
80
100
120
140
160
180
Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16
Equity Valuation Index
14
ICICI Prudential Balanced
Advantage Fund
Wisdom Of Buying Low & Selling High
MoneyBack
FeatureSMART SIP
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Dynamic Asset Allocation Strategy
Needs ExpertiseInvolves
Transaction CostHigher Tax
Liability
Emotions may hamper
decisions
Buy Low
Sell High
Generate Alpha
& Limit Loss
Is it as easy as it sounds?
Dynamic Asset Allocation Strategy
helps in generating reasonable returns even in volatile markets.
16Source: MFIE, BSE India; Above graph is for illustration purpose only. Source: www.nseindia.com & ICRA
Net Equity Levels vis-à-vis Sensex Levels
25
35
45
55
65
75
85
15000
17000
19000
21000
23000
25000
27000
29000
Ne
t E
qu
ity E
xp
os
ure
(%
)
Se
ns
ex
Le
ve
ls
Sensex Levels vis-a-vis Funds benefitting from Net Equity Exposure (%)1st March 2010 – 30th June 2016
Sensex Level Net Equity Exposure %
Buy
Lo
w
Sell
High
17Source: MFIE, BSE India; Above graph is for illustration purpose only. Source: www.nseindia.com & ICRA
Net Equity Levels vis-à-vis Nifty 50 P/BV Ratio
2.60
2.80
3.00
3.20
3.40
3.60
3.80
30.00
35.00
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
Nifty
50 P
rice to B
ook R
atio
Net E
quity L
evels
of F
unds b
enefitt
ing fro
m
exp
osu
re(%
)
Nifty 50 Price to Book Ratio v/s Funds that benefit from changes in Net Equity Levels
Net Equity Exposure of BAF % P/B Ratio Nifty
18
Returns in Flat Market Conditions
Source: MFIE & Internal, Past performance may or may not be sustained in future
Sensex Level
(Flat Market)
Period
(From & To)Sensex’s Movement
BAF’s NAV
Movement
Sensex Return
(CAGR)^
ICICI Prudential Balanced Advantage
Fund (CAGR)
16k to 16k25 May 2010
05 Jun 2012
16022
16021
12.10
14.350% 8.75%
17k to 17k03 Mar 2010
21 Jun 2012
17000
17033
12.32
14.710% 8.00%
18k to 18k04 Feb 2011
28 Aug 2013
18008
17996
13.30
16.000% 7.47%
19k to 19k21 Jan 2011
12 Jun 2013
19008
19041
13.67
16.970% 9.46%
20k to 20k21 Sep 2010
30 Jan 2013
20002
20005
13.92
17.420% 9.96%
21k to 21k04 Nov 2010
18 Oct 2013
20894
20883
14.35
18.160% 8.29%
23k to 23k09 May 2014
29 Feb 2016
22994
23002
20.53
23.720% 8.30%
24k to 24k16 May 2014
20 Jan 2016
24122
24062
21.00
24.750% 10.26%
25k to 25k05 Jun 2014
09 Dec 2015
25020
25036
21.94
25.540% 10.57%
26k to 26k02 Jul 2014
20 Apr 2016
25841
25844
22.44
26.310% 9.23%
27k to 27k02 Sep 2014
30 Jun 2016
27019
27000
23.45
27.450% 9.00%
19
Equity Mutual Fund Schemes
Scheme Description AUM
ICICI Prudential
Balanced
Advantage Fund
• Uses in-house model, based on long term price to book value
with a view to limit downside risk during falling market, while
capturing the upside of rising market.
• Maintain minimum 65% allocation to equities
Rs. 12,418 Crs.*
ICICI Prudential
Value Discovery
Fund
• A diversified Flexicap Fund
• Investment based on an evaluation of several parameters
such as ―Price to Earning‖, ―Price to Book Value‖, ―Dividend
Yield‖ etc.
Rs. 13,205 Crs.*
ICICI Prudential
Focused
Bluechip Equity
Fund
• A Pure Largecap Fund
• Invests in high conviction bluechip companies
• Maintains diversification across sectors inline with the
benchmark
Rs. 11,126 Crs.*
ICICI Prudential
Dynamic Plan
• A diversified fund investing in a mix of large and midcap stocks
• Manages Equity levels in 65% to 100% range based on in-
house Price/Book Value modelRs. 5,494 Crs.*
*Average Asset Under Management as on June 30, 2016
20
Exchange Traded Funds (ETFs) & Index Funds
Scheme Description AUM
ICICI Prudential
Nifty iWIN ETF
• An ETF which replicates the CNX Nifty Index. Rs. 551 Crs.*
ICICI Prudential
Sensex iWIN ETF
• India‘s first ETF based on S&P BSE Sensex Index.
• Track record of more than 12 years (Inception date: January 10,
2003).
Rs. 5 Crs.*
ICICI Prudential Nifty
Index Fund
• Index Fund which replicates the CNX Nifty Index. Rs. 222 Crs.*
*Average Asset Under Management as on June 30, 2016
21
Performance – Equity Funds (CAGR)
* Performance for regular plan as on July 27, 2016
Large Cap Funds 1 Year (%) 3 Years (%) 5 Years (%) 7 Years (%) 10 Years (%)
ICICI Prudential Focused Bluechip Equity
Fund8.02 20.34 14.03 15.52 —
ICICI Prudential Select Large Cap Fund 10.71 19.86 12.90 12.96 —
ICICI Prudential Top 100 Fund 11.50 20.74 14.18 13.94 13.41
Nifty 50 Index 3.95 13.72 9.56 9.59 10.71
Multicap Funds 1 Year (%) 3 Years (%) 5 Years (%) 7 Years (%) 10 Years (%)
ICICI Prudential Value Discovery Fund 7.79 35.20 20.34 22.02 18.87
ICICI Prudential Multicap Fund 9.36 24.70 15.19 14.94 13.65
S&P BSE 500 5.75 17.72 10.15 10.22 11.22
22
Performance – Dynamic Asset Allocation
Funds (CAGR)
* Performance for regular plan as on July 27, 2016
Dynamic Asset Allocation
Funds1 Year (%) 3 Years (%) 5 Years (%) 7 Years (%) 10 Years (%)
ICICI Prudential Balanced Advantage
Fund8.98 18.70 14.33 14.49 —
ICICI Prudential Dynamic Fund 9.21 21.59 13.33 15.14 15.49
Nifty 50 Index 3.95 13.72 9.56 9.59 10.71
23
Traditional Mutual Funds vs. ETF
Investors buy and sell on an exchange and are insulated from each other’s actions.
Stock
ExchangeMutual Fund
Investors interact with the fund to buy or sell shares
Buyers
Sellers
Stock
ExchangeICICI Prudential ETF
Buyers
Sellers
24
Advantages of ETF’s
Transparency • Investors know the ETF holdings, price and costs
Liquidity• ETFs offer two sources of liquidity:
• Traditional liquidity measured by secondary market trading volume
Diversification
• ETFs provide immediate exposure to a basket or group of securities for instant
diversification
• Broad range of asset classes including equities, bonds, commodities, investment
themes, etc
Flexibility• ETFs are listed on exchanges and can be traded at any time the market is open
• Pricing is continuous throughout the day
Cost
effectiveness • ETFs offer a cost-effective route to diversified market exposure
25
46 member investment team comprising of Research Analyst, Dealers, Fund Managers & CIO.
Well defined investment process
Why ICICI Prudential AMC?
26
GARP (Growth at Reasonable Price) investment philosophy and process
Discipline to stick to the investment mandate of the fund
Rigorous on ground research enabling qualitative and quantitative assessment of over top 250
companies
Research output plus risk understanding forms the basis for portfolio construction
Focused on ‗convincing ideas‘ after active debate and arguments
Ongoing review supports process integrity and self discipline
Sustainable Edge - Balance of Managing Scale and Attention to Detail
Why ICICI Prudential AMC?
27
Thank you