Despite the recent market correction, the indices are close to their all-time highs and therefore necessitate some caution. One of the safer options is to consider the dividend yield theme while investing. Companies usually become reasonably consistent and high dividend yielding once they become mature, and these are available across market caps though they are more prevalent in the large cap space. Of course as with all styles, these too could underperform at times, especially when markets have a unidirectional rally and growth stocks are on a roll.
But as a long-term strategy, dividend yield can give steady returns with perhaps a lower level of volatility in the portfolio as such funds generate regular cashflows.
In this regard, investors can consider the ICICI Prudential Dividend Yield Equity Fund for long-term goals that are 7-10 years away. The fund has done quite well over the medium to long term, and has managed to beat the benchmark and deliver above-average returns over the medium to long term.
Investors can use the SIP route for taking exposure to the fund to ride out volatility and average costs.
Steady performer
ICICI Prudential Dividend Yield fund has been on a path generating robust returns over the past five-odd years after a period of relatively moderate performance earlier. On a point-to-point basis over one, three, five and seven-year periods, the fund has outperformed its benchmark Nifty 500 TRI by 2-13 percentage points. It has generally been among the top few funds in the category.
On a rolling three-year basis over January 2017 to January 2024, ICICI Prudential Dividend Yield has delivered an average return of 14.2 per cent annually.
When the above 7-year window is taken and rolling three-year returns are considered, the fund has beaten the Nifty 500 TRI well over 50 per cent of the time.
Again, over three-year rolling periods in the last seven years, ICICI Prudential Dividend Yield fund has delivered more than 12 per cent returns over 64 per cent of the times and in excess of 15 per cent returns nearly 42 per cent of the time.
The fund has been in existence since May 2014. If SIP returns (XIRR) are considered over the past seven years, the fund has given a robust 22.6 per cent in this timeframe. Over the past nine years, the SIP return is 19.8 per cent. These are a good 3-5 percentage points more than what an SIP in the Nifty 500 would have managed over the same timeframe.
These data points clearly indicate that the fund has been a fairly consistent performer in the category.
The fund has an upside capture ratio of 111.18, indicating that its NAV rises much more than the benchmark Nifty 500 TRI during rallies. But more importantly, its downside capture ratio is only 51.5, suggesting that the fund’s NAV falls a lot less than the benchmark during corrections. A score of 100 indicates that a fund performs in line with its benchmark. This is based on data from 2021-2024.
Juggling holdings smartly
ICICI Prudential Dividend Yield fund takes a multi-cap approach to constructing its portfolio. However, the holdings have generally been dominated by large cap stocks over the past three years, to the tune of 60-70 per cent of the overall assets. In 2020, the fund did go high on small caps to the tune of over 23 per cent of the portfolio, which aided returns. Subsequently, exposures have been pared substantially to the small cap space.
In the immediate aftermath of the COVID-19 pandemic, the fund latched on to information technology stocks, pharmaceutical and power companies, which aided outperformance. Subsequently, it pared exposure to some of these segments, especially IT stocks, and added more of firms in the financial services, automobiles and auto components spaces. Stocks in the Oil, gas & consumable fuels areas are other important components of the fund’s portfolio.
For most sectors, the fund mostly chooses the top few players in the respective space for investments.
Over the last year or so, the fund has upped stakes in many public sector undertakings in its portfolio, which have rallied massively and helped the scheme’s performance.
ICICI Prudential Dividend Yield holds about 8-9 per cent of its portfolio in cash and net current assets across timeframes, which insulates the fund somewhat during corrections.
Investors can consider taking exposure to the fund as a part of their satellite portfolio via the SIP mode with a time horizon of 7-10 years.