ICICI Prudential PMS Fundamental Strategy Index Portfolio

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)

 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.
                     

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.

What is Portfolio Management Services (PMS)?

PORTFOLIO:

As per SEBI Definition,
A collection of securities owned by an individual or an institution (such as a mutual fund) that may include stocks, bonds and money market securities.

In another words,
Portfolio (Investment Portfolio) is a collection of investments held by an Individual/ Institution. The collection of investments may be a combination of stocks, bonds and mutual funds, ETFs (Exchange Traded Funs like gold funds) etc.


PORTFOLIO MANAGER:

As per SEBI Definition,
A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client, the management or administration of a portfolio of securities or the funds of the client.

A portfolio manager may be a body corporate or an individual who manages the portfolio of the client as per agreement with the investor i.e. manages the portfolio of the investor with the objective set by the investor.

There are two types of portfolio manager:
• Discretionary Portfolio Manager: one who individually and independently manages the funds of   each client in accordance with the objective of the client.

• Non Discretionary Portfolio Manager: one who advices the client and manages the funds in accordance with the directions of the client.



PORTFOLIO MANAGEMENT SERVICES (PMS):

Portfolio management is defined as the management of a portfolio to enhance the value of the underlying investment to meet specified investment goals of the investor. Fund manager consider appropriate risk-reward level i.e. the return is set as per risk (high/ medium/low) appetite of the investor. It involves a proper investment decision with regards to what to buy and when to sell. This also involves proper money management.

The service provided by body corporate or an individual to manage individuals/ institutions/ fund portfolio as per agreement is called PMS.

The service provider is supposed to have professional experience/ expertise in portfolio management/ investment services and is responsible to take appropriate action to implementing investment strategy and managing the day-to-day activity.

By hiring PMS, an investor actually hires experience/ expertise to manage portfolio. It enables investors to promote and protect their investments that help them to generate higher returns.