Our Call. ICICI Prudential Dynamic Plan: fits the bill - Buy

While it looks like market volatility will remain an issue for at least some more time, funds that contain downsides and handle it well are good bets. ICICI Prudential Dynamic Plan, an equity fund benchmarked to the Nifty index, fits the bill.

By its mandate, the fund shuttles between asset classes based on market valuations. If valuations turn expensive, equity exposure is cut in favour of debt. Between January and August 2013, for instance, as the Nifty index’s price earnings multiple corrected to 14.7 times from 17, the fund’s equity exposure moved from 85 per cent to 98 per cent. The higher equity at that point paid off as markets took flight. The latest April portfolio has an 85 per cent equity exposure, up from the low of 75 per cent last November with PE and price-to-book multiples slightly lower.

Though the fund can invest across market capitalisations, it puts 70-75 per cent of its portfolio into large-cap stocks. Mid- and small-cap picks are usually sound ones such as DB Corp, Cyient, Apollo Tyres, and Balkrishna Industries.

In its debt portfolio, the fund has usually invested in fixed deposits, other short-term debt instruments or held cash. But, over 2014, the fund latched onto sovereign debt, given their sharp rally, putting around 10-15 per cent of the portfolio into G-secs.

The fund’s approach both shields it during market slides and allows gains in bull runs. In the 2011 slide and the 2013 sideways market, for instance, the Nifty lost 4-5 percentage points more than the ICICI Pru Dynamic fund. In rallying markets, while the fund doesn’t put up chart-topping returns, it still does better than its benchmark and the category.

For instance, in the rally that began in September 2013, the fund’s return is a good 15 percentage points more than the Nifty.

In the one, three, and five-year timeframes, the fund’s return of 20.1 per cent, 23.6 per cent and 14.5 per cent are better than the Nifty by four to five percentage points.

The fund has cut exposure to banks since mid-2014 with problems still dogging the sector.

The fund was an early mover into steadier picks in power and energy, and has also upped stake in automobiles. These sectors stand to benefit if recovery gets into full swing.