Fund review - ICICI Prudential FMCG fund
TLDR: Betting on the Indian growth story via FMCG fund,
In the third instalment of the fund review series, we are taking a turn away from ETFs to an actively managed mutual fund. I should probably caveat that by stating that I really want to track the NIFTY FMCG index, but there are no index funds or ETFs that track this index, so I am doing the next best thing by buying into the FMCG index via this mutual fund.
History
The ICICI Prudential FMCG fund was started in March 1999. It is definitely one of the funds that has a long history in the market. This fund tracks the NIFTY FMCG index, which inturn tracks the Fast Moving Consumer Goods sector. The fund prospectus recommends an investment horizon of greater than 5 years, but personally I would stick with greater than 7 years.
Fund particulars
Let us talk some numbers (as of 31-Jan-19)
AUM - 512.86 Crores
Expense ratio - 1.47%
CAGR since launch (Mar 1999) - 17.2%
Source : Valueresearchonline
The compounded annual growth rate (CAGR) is impressive. But the comparison provided by value research online with BSE FMCG is not quite correct as the fund benchmarks against NSE FMCG index with some differences between the two.
SIP Returns
So what would be the return of 10,000 rupees invested in this fund every month yield, if invested for the last few years? Older periods were unavailable
5 years - 1-Jan-2014 to 31-Dec-2018 - CAGR - 14.42%
Amount invested - 600,000.00
Value - 851,734.66
Data from moneycontrol.com
Reasons to hold it
The reason this fund is in my portfolio is not because of the returns from this fund. 17% CAGR is nothing to sneeze at, but there are few funds that have beaten this return consistently including Reliance NIFTY Junior ETF , which I have reviewed earlier.
The reason this fund is part of my portfolio is because of two reasons
Betting on the Indian growth and consumption story, the expected long term trend of internal consumption driven growth
FMCG sector is also a defensive play against market corrections. Consumers still need to buy detergents, shoes, groceries and tooth paste even when there is a severe downturn or recession.
As seen in the above chart, the upside on FMCG is not as great as the other indexes, but FMCG is consistently better performing when the markets turn bearish.
Alternatives
Given that sectoral funds are not exactly de rigueur in the Indian fund investing world except for Pharma, banking and IT sectors, there are not many alternatives to the FMCG index tracking. One fund that can be considered a close enough alternative is
SBI Consumption opportunities fund - AUM 704 crores - expense ratio - 1.48%
This fund was previously called SBI FMCG fund. As a part of the recent rationalisation by SEBI, it was renamed “consumption opportunities fund” in 2018.
Rating
Based on the long term performance of this fund, I would rate this fund 7/10.
Why only 7/10 - expenses. My objective in owning this fund is to track NIFTY FMCG index for reasons stated earlier. Given that there are no ETFs or direct index funds that track this index, I am forced to pick one of the two real alternatives to track this index. Looking at sub 0.5% expense ratios for ETFs and index funds, the expense ratio of 1.47% for this direct fund is definitely on the higher side as well.
16-Apr-20 - Addendum
The expense ratio of this fund has gone up to 2.29% for direct plans. I no longer recommend this fund. If you are interested in FMCG sector, better to go with Mirae great consumer growth fund which is more of a consumption fund, but at an expense ratio of 0.7%
What are your thoughts on this fund? Would you consider this index (not this fund itself) in your portfolio?
