ICICI Prudential PMS Fundamental Strategy Index Portfolio
A Series Under Diversified Portfolio
INVESTMENT STRATEGY:
ICICI Prudential PMS Fundamental Strategy Index would be a passively managed portfolio tracking the Nomura India Fundamental Strategy Index, with an endeavour to achieve the returns of the above strategy as closely as possible.
PORTFOLIO FACTS:
20 stocks are selected from top 100 listed stocks (by market capitalization).
Two Plans available: FSI 15 (with min Rs 15 Lac investments) and FSI 25 (with min Rs 25 Lac investments)
Two Plans available: FSI 15 (with min Rs 15 Lac investments) and FSI 25 (with min Rs 25 Lac investments)
Selection of stocks:
o Fundamental Strategy Index has identified 8 parameters- P/E, P/BV, P/Sales, Enterprise Value (EV)/ Sales, EV/ EBIT, EV/Free Cash Flow, Dividend Yield, Market Capitalization.
o The strategy takes into account the most recent trends, giving more weight to the fundamental factor that the market is assigning importance on quarterly basis.
o Based on these parameters and using a mathematical model, each stock is analyses and top 20 highest scorers are selected.
o Equal Weightage given to all stocks i.e. 5% of total portfolio allocated to each of 20 stocks in the portfolio.
Portfolio allocation: Equity: 65%-100%
Debt and money market instruments: 0%-35% in.
Risk Mitigation Strategy:
o Equity allocation reviewed every quarter and decreases portfolio exposure to equities with increase in volatility.
o If strategy underperforms nifty by more than 10% within a quarter, the equity allocation for that quarter is switched to a portfolio that replicates the broad index like Nifty.
PMS Charges: for Rs 15 Lac minimum investment
o Upfront Fee: 2.25% of total investment
o Fixed Fee: 2.5% pa calculated daily and deducted quarterly of portfolio value
o Accounting Charges: Approx Rs 10,000 pa
o Custody Fee: 0.15% pa of portfolio value
o Exit Load: Upto 1 Year: 2.25% of portfolio value.
1-2 Year: 1.25% of portfolio value.
2-2.5 Year: 1.00% of portfolio value.
Above 1 Year: Nil
Portfolio is suitable for an investment horizon of 3 years & more.
1-2 Year: 1.25% of portfolio value.
2-2.5 Year: 1.00% of portfolio value.
Above 1 Year: Nil
Portfolio is suitable for an investment horizon of 3 years & more.
ANALYSIS & RECOMMENDATION:
The strategies adopted for the PMS look impressive. But efficient execution of these strategies will remain a major concern.
PMS is claiming that if the portfolio had been operational since 30 January 1998(till 16 July 2010), it would have yielded returns of 5,893% (39% CAGR) as compared to the Nifty return of 559% (15% CAGR) i.e. more than 10 times better than the Nifty during this period. This sounds mis-selling.
In any case 65% of the portfolio assets will be in equities which make this portfolio risky especially in bearish market. Even ICICI Risk Profile of the portfolio is 5 (on a scale of 6). This will lower the effect of passively managed portfolio and maintain a high level of risk.
Considering parameters like high market capitalization, Reliance, Infosys, TCS, SBI, ONGC may be in the portfolio which may generate average return in next 2-3 years. This will restrict Portfolio to perform at average level.
