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WF: What do you see as the merits of a multi manager proposition vs a situation where investors/advisors take calls on funds that are relevant at different times of the market cycle?
Raghav: The genesis of this idea was based on the fact that there are a variety of mutual fund Schemes with varying strategies, styles, themes and market cap. Also, the winners in terms of the product category, of no two years are similar. As a result, we saw room for value add to Portfolio Management Services (PMS) investors through an offering wherein we can create a pool of Schemes which holds the potential to perform well in the near term and can be re-balanced, if warranted. In-case of special situations, this portfolio can also change schemes even before completion of one year to capture alpha.
This arrangement has been made keeping in view that investors tend to follow the entry and exit calls with a lag. However, when it comes to PMS, one can be nimble footed, thereby allowing the fund manager to take active calls which ultimately results in a positive investor experience.
More importantly, a multi manager proposition attracts an equity taxation and this idea is increasingly gathering steam among the IFA community.
WF: Why did you decide to create this ICICI Prudential PMS Multi-Manager Portfolio as a PMS proposition rather than a retail fund-of-funds product?
Raghav: There are two major reasons for this decision:
Taxation: ICICI Prudential PMS Multi-Manager Portfolio being on PMS platform has equity taxation which is beneficial to the investor Cost: In Multi-Manager Portfolio we have capped the expenses at 2.5%. This essentially includes expense ratio of underlying mutual fund schemes, PMS Management Fee, PMS Operation's fee, GST as and where applicable and any other cost. Exit Loads: Ideally re-balanced on a yearly basis, hence keeping the exit loads at a minimum
WF: In what ways does this PMS product differ from your ICICI Prudential Balanced Advantage Fund, which anyway dynamically allocates across equity and debt in an effort to provide a smoother ride for investors through volatile markets?
Raghav: ICICI Prudential PMS Multi-Manager Portfolio is a bouquet of funds wherein we take sizeable thematic calls once we are convinced of the theme and the opportunity it presents. If market valuations are attractive/ reasonable, we can invest 100% in equity funds. However, at times when the market is expensive, we take exposure to Dynamic Asset Allocation Funds like ICICI Prudential Balanced Advantage Fund, ICICI Prudential Dynamic Plan, ICICI Prudential Balanced Fund and ICICI Prudential Equity Income schemes.
Another very important feature of the product is the re-balancing which we do ideally after investor has completed a year. Choosing the right schemes as per the market conditions is one part of the product, while exiting the theme once it has played out and re-balancing when required is an equally important part such that the investments are aligned to the market conditions.
Here the product can take aggressive thematic calls or can play defensive by using Dynamic Asset Allocation Schemes in order to suit market cycle aptly.
WF: How has performance of this proposition panned out since launch?
Raghav: This product was launched in June 2016 and has been rebalanced only once this last July. On an annualised basis, ICICI Prudential PMS Multi-Manager Portfolio June 2016 series has outperformed the Nifty by 300 bps. This is at a time when the standard deviation of the product is lesser than a pure equity scheme.
WF: There have been a few scheme changes effected within a year of holding them. How has the cost-benefit worked out in terms of incremental tax on the one hand vs better pre-tax returns on the other?
Raghav: In August 2016 series, the portfolio had invested around 29.5% in ICICI Prudential Equity Income Fund (EIF) - Monthly Dividend Re-investment option as we were of the view that market has seen a sharp uptick within a very short span. Consequently, from August to November 2016, the market was largely range bound. As a result of investments in EIF, the Scheme managed to generate alpha. November 2016, thereafter, provided the opportunity to increase stake in equities when the market corrected due to demonetisation and entire shift from EIF to equities post Budget in Feb 2017, aided in the Schemes's outperformance. The added feature of Monthly dividend option of Equity income fund and easy switches into equity funds without exit loads provided the investor an opportunity to gain from better post tax returns and adapt to different market cycles efficiently.
Allocation in various market conditions
Range bound market
Demonetization Phase
Uptrending Market
Final Result
WF: For what kind of investors is this a good proposition?
Raghav: This is a good proposition for a PMS investor because of the following reasons:
Appropriate diversification based of fund management style Possibility of generating sizeable alpha by taking theme based call when required Periodic rebalancing helps tap into varying opportunities presented by market conditions Investor can also do stock transfers All of the above at a reasonable cost
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