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The second largest and one of the top performing AMCs in India—ICICI Prudential Mutual Funds—has launched its New Fund Offer on 16 September 2019.
The open-ended NFO issue is named “ICICI Prudential Global Advantage Fund”. As the name suggests, it is a mutual fund scheme to invest in mutual funds that invest in international stocks. That is, this NFO issue is of a fund of funds.
Let’s see the NFO features and other insights in this review of ICICI Prudential Global Advantage Fund.
Table of Content:
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1. Features of ICICI Prudential Global Advantage Fund
2. Quick Review of ICICI Prudential Mutual Fund AMC and Fund Managers
3. Fund Managers: Common Fund Performance Review
4. Risk Analysis of ICICI Prudential Equity Savings Fund
5. What Is Special About ICICI Prudential Global Advantage Fund?
6. The Blind Spot in ICICI Prudential Global Advantage Fund
7. Review of Risks in ICICI Prudential Global Advantage Fund
8. Should You Invest in ICICI Prudential Global Advantage Fund?
Features of ICICI Prudential Global Advantage Fund
Fund Name: ICICI Prudential Global Advantage Fund
Fund House: ICICI Prudential Mutual Fund
Issue Opens On: 16 September 2019
Issue Closes On: 20 September 2019
Fund Type: Open-Ended
Fund Category: Equity-International
Benchmark: S&P Global 1200 TRI (80%), S&P BSE Sensex TRI (20%)
| Basic Investment Details | |
|---|---|
| Available plans | Growth, Dividend |
| Riskometer | High |
| Minimum Subscription Amount | ₹5000 |
| Minimum Additional Application Amount | ₹1000 |
| Minimum SIP Investment | ₹100 (plus in multiples of ₹1) |
| Minimum Instalments | 6 |
| Minimum SIP-Quarterly Only | ₹5000 (plus in multiples of ₹1) |
| Minimum Instalments-Quarterly Only | 4 |
| Minimum SWP Amount | ₹500 |
| Expense Ratio | 2.25% |
| Entry Load | Not Applicable |
| Exit Load | 1% (For Redemption within 365 Days) |
Quick Review of ICICI Prudential Mutual Fund AMC and Fund Managers
ICICI Prudential Mutual Fund, founded in 1993, is a pioneer in mutual funds in India.
With a total AUM of ₹305,739 Crores, it is the second largest Asset Management Company in India. ICICI Prudential Mutual Fund is also a top performer with consistently delivering mutual fund schemes for more than two decades now.
Headquartered in Mumbai, Mr Nirmal Shah is the present CEO of the ICICI Mutual Fund. Meanwhile, Mr Sankaran Naren being the Chief Investment Officer will also act as one of the fund managers for the ICICI
Both of these fund managers are already co-managing 6 mutual funds for the ICICI Prudential Mutual Fund. ICICI Prudential Global Advantage Fund will be an addition to the funds co-managed by this duo.
Let’s review a common fund managed by this fund manager duo to see its performance.
Fund Managers: Common Fund Performance Review
One of the funds co-managed by the same fund managers is the ICICI Prudential Equity Savings Fund. The basic details of the fund, its AUM and its return data are shown in the table below.
| ICICI Prudential Balanced Advantage Fund | |
|---|---|
| Fund Category | Hybrid: Equity Savings /td> |
| Benchmark | NIFTY Equity Savings TRI |
| Riskometer | Moderately High |
| Launch Date | Dec 05, 2014 |
| Return Since Launch | 7.30% |
| AUM | ₹1,530 crores |
| *Data as of August 31, 2019 | |
The CAGR of the ICICI Prudential Equity Savings Fund relative to the fund category mean and its benchmark is as follows.
| Trailing Returns | YTD | 1 Year | 3 Year |
|---|---|---|---|
| Fund | 5.26% | 6.10% | 6.59% |
| Benchmark | 4.92% | 5.86% | 7.37% |
| Category | 2.47% | 1.15% | 5.30% |
| *Data as on September 16, 2019 | |||
ICICI Prudential Equity Savings Fund is a relatively new mutual fund scheme that is only in its fifth year now.
In the first 1year return, it has outperformed well above the other funds in its category. However, in the 3year horizon, the returns have slipped below its benchmark although that is not a steep fall.
The Year-To-Date returns show that the ICICI Prudential Equity Savings Fund has outperformed its benchmark and its category.
Analysis: We must note that the fund manager Mr Dharmesh Kakkad took over the fund only a year ago in September 2018. This relative increase in return, in account with the slowdown in economic activity in India over the past year is commendable.
It should reflect positively on the fund manager, since he will also be managing ICICI Prudential Global Advantage Fund. But let’s not jump to conclusion before risk analysis.
Risk Analysis of ICICI Prudential Equity Savings Fund
When the risks are high, the return on the investments should be worth it.
ICICI Prudential Equity Savings Fund’s returns do not seem to grow rapidly. It could mean it is less volatile. Let’s see the data to check if it’s true.
| Risk Measures | Std Deviation | Beta | Alpha |
|---|---|---|---|
| Fund | 3.14% | 0.62% | -0.38% |
| VR MIP TRI | 4.18% | – | – |
| Category | 4.74% | 0.93% | -2.31% |
| *Data as on August 31, 2019 | |||
Reviewing Risk with Alpha: Alpha values are indicators of the fund manager performance. Alpha is calculated by comparing the fund’s CAGR value against its benchmark index’s value.
The ICICI Prudential Equity Savings Fund has an alpha of -0.38%. It is giving a return 0.38% lesser than the index fund which is not bad. The records for the past 8moths show that the alpha value is improving.
Certified Financial Planners advise that an actively managed fund must have a positive alpha value since it incurs an expense. It is ideal to always have an alpha value greater than 1 for any fund.
Reviewing Risk with Beta: The beta value directly represents the volatility of the fund, although it does not represent the performance of a scheme. At any given time a beta value lesser than 1% is preferred.
A higher beta value denotes the fund manager is open to higher risks for higher returns. Here, a beta value of 0.62% is appreciable. However, correlating the beta value with that of alpha indicates a performance lag, though very small.
Reviewing Risk with Standard Deviation: Standard Deviation also represents the volatility of the scheme but with respect to its mean return.
The ICICI Prudential Equity Savings Fund has delivered 7.30% CAGR since launch, with a standard deviation of 3.14%. It is possible that the fund’s return might fluctuate between ± 3.14% from the mean 7.30%.
In terms of risk, the ICICI Prudential Equity Savings Fund is living up to its name. With savings being the main focus, the fund managers are doing as per the fund’s objective. However, if there is no increase in the CAGR in the following years, one can say equity mutual funds potential is not efficiently harnessed.
What Is Special About ICICI Prudential Global Advantage Fund?
The centre of attraction about ICICI Prudential Global Advantage Fund is that it gives exposure to international stocks. It is said 95-100% of the fund will be allocated towards equities and ETFs, out of which 65% will be towards international equities.
As said earlier, it is still only a feeder fund for other mutual funds and ETFs investing in international markets.
The Blind Spot in ICICI Prudential Global Advantage Fund
Even though the official statement is that the ICICI Prudential Global Advantage Fund will predominantly invest in units of mutual fund schemes which can invest globally, it has not been specific. It can be any globally investing funds managed by ICICI Prudential Mutual Fund and/or other AMCs.
There has not been any information about what will be the focus funds that this fund will feed, or what kind of international markets this fund is trying to target.
On the other hand, the fund will also invest in mutual funds and ETFs that invest in domestic markets.
Also, this ICICI Prudential Global Advantage Fund will not be listed on any of the stock exchanges since it is entirely a feeder fund. This might limit a retail investor’s comfort to assess and review their portfolio as they will have to rely only on the data provided by the ICICI Prudential Mutual Fund.
Review of Risks in ICICI Prudential Global Advantage Fund
The details of or its lack thereof reviewed in the above section should also showcase the risks it carries.
The ICICI Prudential Global Advantage Fund is not the usual fund that Indian investors trust after a series of research and invest in them. The ambiguity in the details provided by the ICICI Mutual Fund also limits investors’ view to understand the potential risks.
Yet, it will carry the standard multiple risks including:
Market Risks: arising from market fluctuations which may result in capital loss.
Liquidity Risk: arising from difficulty in selling an asset at a fair price due to lack of buyers.
Risks Associated With Fund of Funds: Investors will be incurring expenditure at two different levels of funds since both the master funds and the feeder fund will have expenditures. It will reflect heavily on the CAGR of the fund.
Operational and Custody Risk: Since the fund invests in multiple international markets some of them may have regulation issues, this could increase the custody and liquidation services risks.
It may also face risks due to policy changes by the Government or the body of the regulations in India with regards to international investments. Besides, the fluctuations in the currency value of the base currency of the master fund and the Indian currency will also have an impact on the CAGR value.
Should You Invest in ICICI Prudential Global Advantage Fund?
Our reviewing of the AMC and the performance of the fund manager for the ICICI Prudential Global Advantage Fund is quite promising. When we look at the fund itself, no significant information is revealed for the investors to assess.
Balancing all the pros and cons, this NFO issue does not leave a good impression. There is no strong objective reason for an Indian investor to invest in this fund.
Our advice is, Do Not Invest in ICICI Prudential Global Advantage Fund yet. You can always invest in mutual funds with good track records that invest in international markets.
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