Taking a ride on the rally of metal stocks, this fund has given triple digit returns in the last 1 year.
The ICICI Prudential Commodities Fund (IPCF) , launched in October 2019, has performed extremely well. In just the last 1 year, the fund has given a return of 172%. These data are based on the details of Value Research. Now the question is whether this scheme will be able to maintain its return rate. Should we invest in this fund now?
Know about the scheme
IPCF is a thematic fund that invests in commodity stocks. Commodity stocks are of cyclic nature. Such shares are associated with the economy. These also accelerate with the boom in the economy.
Currently, there are 4 such funds in the market. The scheme invests in stocks of paper, cement and cement products, metals (ferrous metals, non-ferrous metals, mineral and mining) chemicals, fertilizers and pesticides segments.
Apart from this, a part of it is also a reserve for other commodity sectors like oil and gas. According to the mandate of the scheme, at least 80% of this scheme is invested in commodity stocks. Sankaran Naren and Lilit Kumar manage this fund.
How did this fund perform well
Thematic funds perform well when their sectors perform well but real success is achieved when the fund’s managers recognize the right phase of the cycle for the purchase of shares.
The IPCF fund was launched at a time when the metal sector cycle was at its bottom and at the same time the scheme placed heavy bets on metal stocks. More than 40 per cent of the portfolio of the scheme was in the metal sector.
Once again, when the market took a deep dive in March 2020, the managers of this fund gave space to many of the cheaply available metal stocks in their portfolios and 60% of the scheme was in the metal sector, which benefited the scheme.
Hindalco Industries included in the scheme increased by 180%, Jindal Steel & Power by 365%, Vedanta by 187% and Steel Authority of India by 275%. Due to which the scheme saw tremendous growth.
Neeraj Chadawar of Axis Security says that in 2020, the metal sector has been the top performer on the back of strong demand growth after long weaknesses of 2018 and 2019. Apart from this, the weakness of the dollar index has also supported the price of the commodity. The dollar index has lost 9 per cent in the last 1 year, while the global commodity index has risen 48 per cent in the same period.
Lalit kumar says that there are still opportunities to move up and down in the commodity sector. He said that the commodity sector in China is under pressure due to efforts to control pollution and it is tightening the pollution-causing steel and aluminum industry, which will benefit Indian companies.
Kumar further says that there is a lot of debt on many metal and mining companies. Increasing commodity prices will increase their profits, which will also reduce the debt of these companies in the next 2-3 quarters. Apart from this, the focus of countries like India, China and America on infra development will also show a boom in the commodity sector and further we will see a rise in commodity stocks.
What should be the investment strategy now
Although thematic funds give us high returns but sometimes there is a lot of risk in them. We also get a lot of volatility in commodity stocks because many global and domestic factors affect them. There have been only 3 such occasions in 10 years when the commodity index has outperformed the Sensex Nifty.
Being a thematic fund, the scheme is limited to only 26 stocks. Higher allocation on small cap shares increases the risk of the scheme.
Neeraj Chadawar of Axis Security says that there has been a huge jump in metal and commodity prices in the hope of a faster global recovery. Due to any bad news on this front, there may be a lot of pressure on this sector and risk may have to be taken in the near term.
This scheme is only 20 months old, so it would be right to stay away from it. Stay away from it until it performs strong and stable performance in the Across Market cycle in a long time frame.
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