ICICI Prudential Asset Management Company (AMC) has revealed its strategic approach to dividend investing, emphasizing sustainable payouts over high yields alone. Mittul Kalawadia, Senior Fund Manager at ICICI Prudential AMC, detailed the fund house's methodology for their dividend-focused fund, which currently boasts Assets Under Management (AUM) exceeding ₹5,700.00 crores.

Sustainable Yield and Growth Focus

The fund's strategy centers on evaluating stocks based on two key factors:

1. Yield sustainability
2. Growth potential

This approach involves ranking stocks to select top performers, moving beyond the traditional focus on high dividend yields. By prioritizing sustainability, the fund aims to ensure consistent returns for investors over the long term.

Dynamic Market Cap Allocation

A notable aspect of ICICI Prudential's dividend fund strategy is its dynamic allocation across market capitalizations. The fund adjusts its exposure to mid and small-cap stocks based on market conditions:

• During market corrections: Increased exposure to mid and small-caps
• When valuations become expensive: Reduced exposure to mid and small-caps

This flexible approach allows the fund to capitalize on market opportunities while managing risk.

Sector-Specific Strategies

Financials

For the financial sector, the fund employs a bottom-up analysis approach, focusing on:

• Market cycles
• Valuations

Notably, the fund does not rely solely on dividend yields when evaluating financial stocks, recognizing the complexity of this sector.

Public Sector Undertakings (PSUs)

PSUs are treated as a separate category within the fund's strategy, acknowledging the unique policy risks associated with these entities.

Performance Metrics

The ICICI Prudential dividend fund has demonstrated strong performance:

• Average dividend yield: 1.55%
• Five-year returns: Described as strong (specific figures not provided)

Portfolio Management

The fund's portfolio turnover is not fixed but varies based on market opportunities. Significant changes to the portfolio are made when relative yields shift meaningfully, ensuring the fund remains aligned with its core strategy.

Investor Perspective

ICICI Prudential positions this dividend fund as a potential core component of investors' equity allocation. The fund house emphasizes the importance of a long-term perspective when investing in this strategy, aligning with its focus on sustainable dividend yields and growth potential.

In conclusion, ICICI Prudential's dividend fund strategy represents a nuanced approach to income-generating equity investments. By balancing sustainable yields with growth potential and employing dynamic allocation across market caps, the fund aims to deliver consistent returns while adapting to changing market conditions.

In a strategic move to diversify investment portfolios, S Naren, Chief Investment Officer at ICICI Prudential Mutual Fund, is encouraging Indian investors to explore global equities in markets that have been underperforming. Naren specifically points to opportunities in Brazil, China, South Korea, and Taiwan, noting their attractive valuations compared to the high-performing markets of India and the United States.

Valuation Disparities and Historical Performance

Naren's recommendation comes against the backdrop of a 15-year outperformance by Indian and US markets. This extended bull run has led to significant valuation differences, with many Indian stocks now trading at price-to-earnings (P/E) multiples of 50-60 times. The situation is reminiscent of the investor behavior seen in the 1990s, with even loss-making companies successfully raising funds and delivering strong returns.

Global Market Performance

Recent market performance data underscores the potential in some of these undervalued markets:

South Korea leads the pack with an impressive 33.64% year-to-date return, while Brazil follows with a solid 12.99%. In comparison, India's Nifty 50 has gained a modest 3.93% over the same period.

Challenges for Indian Investors

Despite the apparent opportunities, Indian investors face a significant hurdle in accessing these global markets through domestic mutual funds. The Indian mutual fund industry is currently constrained by a fully utilized $7 billion overseas investment quota. This limitation restricts the ability of domestic investors to diversify internationally through local fund offerings.

Portfolio Diversification Strategies

While advocating for global diversification, Naren also recommends gold as a portfolio diversifier. However, he cautions against making large bets on any single asset class. This balanced approach aims to mitigate risks while potentially capturing gains from various market segments.

Outlook and Implications

The insights from ICICI Prudential's CIO highlight the importance of a global perspective in investment strategies. As valuations in India and the US remain elevated, investors may find value and growth opportunities in markets that have lagged in recent years. However, the current regulatory environment poses challenges for Indian investors seeking to act on these global investment themes through domestic mutual funds.

As the investment landscape continues to evolve, market participants will be watching closely to see if regulatory changes or new investment vehicles emerge to facilitate easier access to global markets for Indian investors. In the meantime, Naren's advice serves as a reminder of the potential benefits of looking beyond home markets for investment opportunities.