Large Cap Fund Supremacy: ICICI Pru Bluechip Fund vs SBI Bluechip Fund

May 9, 2024 Mutual Fund

The Nifty 50 index and the S&P BSE Sensex hit a lifetime high in early April. The Sensex surpassed the 75,000 mark, while the Nifty 50 traded near 22,750.

However, the indices later consolidated as investors booked profit amid valuation concerns, nervousness surrounding the Lok Sabha elections, uncertainty about the timing of rate cuts by the US Federal Reserve, and Q4 result jitters.

On the contrary, the mid-cap and small-cap indices continued to scale fresh highs in April despite SEBI’s warning of froth building in the segment.

The markets are anticipated to remain highly volatile in the near term. Thus, investors should adopt a cautious approach and preferably invest in high-quality Large Cap Funds that are well-managed, demonstrate lower volatility, and have the potential for superior long-term growth.

Large Cap Funds are generally considered to be less risky compared to Mid Cap Funds and Small Cap Funds, offering a higher level of stability to a portfolio. The primary advantage of including Large Cap Funds lies in the stability they bring, although this may come at the expense of the growth potential typically associated with mid-cap investments. These funds are well-suited for investors seeking steady returns with a preference for moderate risk.

While Large Cap Funds may not be the ideal choice for aggressive investors seeking high-risk, high-return opportunities, it is prudent to allocate a significant portion of one’s portfolio to these stable funds. Such allocation can provide the necessary stability and prove beneficial during periods of extreme market volatility. Therefore, it is advisable to incorporate a substantial share of large caps into the core holdings of your portfolio.

[Read: Do Large Cap Funds Make More Sense in An Overheated Equity Market?]

With over 30 schemes in the category, choosing the right fund becomes paramount. ICICI Pru Bluechip Fund and SBI Bluechip Fund are the two most popular schemes in the Large Cap Fund space.

This comprehensive analysis delves into a head-to-head comparison of these funds, equipping you with the knowledge to make an informed investment decision.

About ICICI Pru Bluechip Fund

With an AUM of Rs 53,505 as of March 31, 2024, ICICI Prudential Bluechip Fund is currently the largest scheme not just in the Large Cap Fund category but also among diversified equity mutual funds. Launched in May 2008, the fund focuses on investing from the universe of top 100 companies listed on the NSE in which the fund manager has high conviction.

Having a track record of about 16 years to its credit, the fund has generated returns at around 15.3% CAGR since inception, as against 11.8% CAGR generated by its benchmark Nifty 100 – TRI over the same time period. The fund is managed by Mr Anish Tawakley (CIO – Equity) since September 2018 and Mr Vaibhav Dusad since January 2001.

About SBI Bluechip Fund

Launched in February 2006, SBI Bluechip Fund is the second largest scheme in the Large Cap Mutual Fund category having an AUM of Rs 44,820 crore. The fund holds a large-cap-biased portfolio, along with strategic allocation to mid caps. SBI Bluechip Fund is known for its multi-bagger bets that have proved to be rewarding for its long-term investors.

The fund has generated returns at around 12.1% CAGR since inception, as against 11.7% CAGR generated by its benchmark S&P BSE 100 – TRI over the same time period. Earlier managed by SBI Mutual Fund’s star fund manager, Ms Sohini Andani, the fund is now helmed by Mr Saurabh Pant.

Investment style and philosophy:

ICICI Prudential Bluechip Fund follows a bottom-up approach of stock picking whereby it shortlists companies with a proven track record, quality management, and good growth potential.

It follows a process-based investment strategy to identify quality large-cap stocks in which the fund manager has high conviction. While the fund majorly has a growth-oriented approach, it has also shown some flair towards the value style of investing. The fund invests in a diversified portfolio of stocks without any sector bias. While picking stocks the fund managers look for the scalability of the company they are considering buying and give high weightage to the management track record and scope of improving profitability. The fund typically follows a buy-and-hold strategy and invests with a long-term view. It had a low turnover ratio of around 25-30% in the last one year.

SBI Bluechip Fund aims to invest in large-sized companies having an established business presence, good reputation, solid brand equity, and which are possibly market leaders in their industries with less uncertainty in the top-line and bottom-line growth. The investment team also aims to keep an eye on consistency in management performance, changes in leadership, and key management decisions, that can affect the outlook of the business.

SBI Bluechip Fund follows a blend of ‘growth’ and ‘value’ style of investing. The fund follows a combination of the ‘top-down’ and ‘bottom-up’ approaches to pick stocks across sectors. It usually holds about 50-60 stocks in its portfolio and follows a buy-and-hold investment strategy. Accordingly, it has a low portfolio turnover of around 20%.

Performance comparison: Rolling returns

In the last one year, ICICI Pru Bluechip Fund has outpaced SBI Bluechip Fund by nearly 5 percentage points in absolute terms on a rolling returns basis. Over the 3-year, 5-year, and 7-year period too ICICI Pru Bluechip has outperformed SBI Bluechip Fund by around 1-2.5 percentage points. Meanwhile, over the longer 10-year period their returns have closely aligned with one another.

Performance comparison based on rolling returns

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of May 06, 2024
(Source: ACE MF, data collated by PersonalFN) 

ICICI Pru Bluechip Fund has also outpaced its benchmark Nifty 100 – TRI across time frames. On the other hand, while SBI Bluechip Fund’s returns across time frames have been on par with its benchmark S&P BSE 100 – TRI. However, it has trailed some of its peers in the last one year.

Both schemes have displayed noteworthy long-term returns, with ICICI Pru Bluechip Fund currently faring better than most of its peers and the benchmark.

[Read: Should You Invest in Nifty Index Funds as Large Cap Mutual Funds Underperform?]

[Read: Are Large Cap Mutual Funds Falling Out of Favour?]

Portfolio Composition: Market cap allocation of ICICI Pru Bluechip Fund and SBI Bluechip Fund

Classified as Large Cap Funds, both ICICI Pru Bluechip Fund and SBI Bluechip Fund are mandated to invest a minimum of 80% of their assets in large-cap stocks.

Break-up of market cap allocation

Holding in (%) as of March 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

As of March 31, 2024, both funds invested about 81% of their assets in large-cap stocks. In terms of non-large-cap exposure, SBI Bluechip Fund had higher exposure to mid-cap stocks (14.8%) with no allocation to small caps. In comparison ICICI Pru Bluechip Fund held an allocation of 8.7% in mid-cap stocks and a nominal allocation of 0.5% in small caps. The higher mid-cap exposure in SBI Bluechip can help it capitalise on broad-based market rallies. However, it can also result in a higher downside risk during bearish market conditions.

ICICI Pru Bluechip Fund held a relatively higher exposure of about 10% in cash and equivalents over the last one year. This can be attributed to the expensive valuations in certain pockets in the equity market. Meanwhile, SBI Bluechip Fund’s allocation to the non-equity segment is usually under 5% highlighting its focus on staying fully invested in equities at all times.

Risk-return Profile of ICICI Pru Bluechip Fund and SBI Bluechip

The volatility registered by ICICI Pru Bluechip Fund (12.59%, annualised) and SBI Bluechip Fund (12.83%, annualised), as denoted by their standard deviation is lower than their respective benchmarks and the category average.

How have the schemes fared on risk ratios

Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of May 06, 2024
(Source: ACE MF, data collated by PersonalFN) 

In terms of risk-adjusted returns as denoted by the Sharpe ratio, ICICI Pru Bluechip Fund has remarkably outperformed the benchmark and most of its peers. On the other hand, SBI Bluechip Fund has slightly trailed its benchmark but has outpaced some of its peers.

In terms of their ability to limit the downside risk, as denoted by the Sortino ratio, ICICI Pru Bluechip Fund fares exceptionally well, much ahead of SBI Bluechip Fund.

Notably, SBI Bluechip Fund’s muted returns in the last one year have likely dragged its ranking in terms of risk-return profile.

Top portfolio holdings of ICICI Pru Bluechip Fund and SBI Bluechip Fund

Since the investible universe of large-cap stocks is limited to the top 100 companies, the top holdings of Large Cap Funds usually closely resemble each other.

Top portfolio holdings of the schemes

Holding in (%) as of March 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

As of March 31, 2024, ICICI Prudential Bluechip Fund held a well-diversified portfolio of 67 stocks with the top 10 stocks accounting for 51.4% of its holdings. Its portfolio is skewed towards Financials, followed by Petroleum, Auto, Infotech, and Engineering. The fund held its major exposure in bluechips such as ICICI Bank, Reliance Industries, L&T, Maruti Suzuki India, and Infosys. Many of these names have been prominent holdings in the fund’s portfolio for well over 2 to 3 years now. It also currently holds a nominal allocation of 1.2% in Rights.

As of March 31, 2024, SBI Bluechip Fund held a well-diversified portfolio of as many as 49 stocks. The top 10 stocks accounted for around 47.6% of the portfolio. It favours Financials, Auto & Auto Ancillaries, Consumption, Pharma, and Engineering stocks. HDFC Bank topped the list with an allocation of around 8.1%, followed by some other popular large-cap names such as ICICI Bank, L&T, ITC, and Bajaj Finance. Notably, the top portfolio holdings comprise a good mix of stocks belonging to different sectors and have been part of the fund’s core portfolio for multiple years now.

Expense Ratio of the schemes

ICICI Pru Bluechip and SBI Bluechip Fund carry similar expense ratios under the Direct Plan at around 0.83% and 0.85%, respectively. Under the Regular Plan, ICICI Pru Bluechip Fund offers cost advantage, resulting in higher net returns for investors.

Expense ratios of the schemes

Data as of March 31, 2024
(Source: ACE MF) 

Do note that a lower expense ratio can translate into potentially higher returns over time. Over the long term, even a seemingly small difference in Expense Ratio can make a big difference to your overall returns. However, it should not be the sole parameter for selecting a scheme for your portfolio.

Suitability of schemes to investors’ risk profile and investment goals

ICICI Prudential Bluechip Fund has a proven track record of identifying fundamentally sound stocks in the large-cap space. The fund aims to reduce volatility by investing in a well-diversified portfolio of stocks across sectors that enjoy a competitive edge and have a sustainable market share. Moreover, it does not react strongly to market events and maintains a long-term focus.

ICICI Prudential Bluechip Fund has a track record of generating decent alpha over the benchmark and many of its peers. Notably, ICICI Prudential Bluechip Fund, just like many of its large-cap peers, struggled to match the performance of the benchmark between 2018 and 2020. However, the fund has shown improvement in performance in the last few years, and has rewarded investors with noteworthy risk-adjusted returns. Notably, its performance may at times be in contrast to its peers that hold significant exposure to mid-caps.

ICICI Prudential Bluechip Fund is suitable for long-term investors who are looking for decent returns along with the stability of large caps with an investment horizon of at least 5 years.

While SBI Bluechip Fund has shown a mixed trend in terms of outperformance and underperformance over various market phases in the past, the fund has managed to generate satisfactory returns over the long run. The fund’s bias towards quality large-cap stocks, along with strategic allocation to mid caps, has enabled it to record reasonable risk-adjusted returns.

SBI Bluechip Fund is completely benchmark agnostic, and its allocation to certain sectors may significantly deviate from the benchmark. Thus, the returns of the fund may not always be in line with the benchmark. While the fund’s erstwhile star fund manager, Ms Sohini Andani, has recently quit, the current fund manager Mr Saurabh Pant too comes with a reasonable experience and has been associated with the AMC since 2007. Backed by sound risk-management techniques at the AMC level, SBI Bluechip Fund has the potential to show market-beating performance and create wealth for its investors in the long run.

[Read: Sohini Andani the Star Fund Manager Quits SBI Mutual Fund]

SBI Bluechip Fund is suitable for long-term investors looking for stability as well as steady growth potential of large caps along with tactical allocation to mid caps.

Watch this video to check the four best Large Cap Funds for 2024:

This article first appeared on PersonalFN here