aim to build wealth by following a rule-based investing

Aim to build wealth by following a Rule-Based Investing Approach

Investing Evolution

19

60s

19

70s

19

80

-90s

ACTIVE

RETURNS

ALPHA

MARKET

BETA

ALPHA

VALUE OR

GROWTH

BETA

MARKET

BETA 20

00

on

ward

s

ALPHA

FACTORS

(Single or

Multifactor)

MARKET

BETA

2

CONFIRMATION

BIAS

Investor X wants to

buy Stock ABC

when the price dips

News #1: Price fell

News #2: Price fell due

to quality failure

X will only ACCEPT

News #1 &

IGNORE News #2

Stock selection based on

PARAMETERS OVER

ASSUMPTIONS

The above are for illustration purpose only

Behavioral Biases affecting Investing Decisions

BIASOPTIMISM

BIAS

LOSS AVERSION

BIAS

SITUATIONInvestor X holds a huge

quantity of Stock ABC

Investor X holds Stock ABC

News #1: Price fell

due bankruptcy claim

RECENCY

BIAS

Investor X holds Stock ABC

News #1: Price rallied

20% over 5 years

News #2: Price fell over

the last 3 months

ACTION

RULE-BASED SOLUTION

Weights are assigned

based on

CALCULATIONS OVER GUT

Rebalancing is done

based on

FACTS OVER SENTIMENTS

Portfolio turnover is

based on

SET PRINCIPLES OVER

IMPULSE

X believes that the price

will only rise & never fall

X will continue to hold

with a hope of revival

Investor may act

based on News #2

3

Presenting,

ICICI Prudential Quant Fund

A Shift from Human to Rule Based Investing

4


A Fund investing based

on Quantitative Model

ensures limited human

intervention in the

entire process of

screening and selection

of stocks

While certain other

quant models help to

ascertain optimum

asset allocation, this

Quant Model helps to

select relevant stocks

based on predefined

parameters

Various quantitative

parameters are

considered while

constructing the

Quant Model

A Rule Based

Quantitative Model may

help to avoid pitfalls

of behavioral bias as

well as minimize

‘Greed’ and ‘Fear’

The Quant Model

will be reviewed

periodically as various

parameters perform in

different market cycles

5

Portfolio Construct Based on Quant Model

The Scheme will invest in equity & equity related securities selected based on

an in-house proprietary Quant model.

• Use of various

Quantitative parameters

• Equal weights to the

parameters

•Review of parameters at

set frequency to avoid bias

• Considering the market

cap and composite score of

stocks screened by the

model, individual weights

shall be assigned

• Important in order to

avoid liquidity risks

• Review of Parameters

• Periodic Rebalancing

• Adhoc - Rebalancing

SCREENING SIZING REBALANCING

The asset allocation and investment strategy will be as per the provisions of the Scheme Information Document.

6

Screening

Eliminating stocks from the Universe based on not

meeting the requirement of the parametersNEGATIVE SCREENING

SELECTING

SCORING

SIZING

Shortlisting companies based on various macro,

fundamental and technical factors

Arriving at a composite score for each company by

giving equal weights to each parameter

Construction of a portfolio of 30-60 stocks using

the Composite Score and Market Cap

UNIVERSE: S&P BSE 200 INDEX


7

The above list is indicative and is only for illustrative purposes

Screening – Quantitative Parameter

• Quantitative Parameters help to ascertain absolute and relative valuations

• Use of various parameters

• Parameters are reviewed on an annual basis in consultation with the CIO

• Parameters selected are given equal weights to arrive at a composite score

MACRO

INDICATOR:

• Mcap to GDP

• Currency

movement

FUNDAMENTAL

PARAMETERS:

• Price to earnings

ratio (P/E Ratio)

• Price to book

value (P/B Ratio)

• Dividend Yield

• Return on equity

• Return on assets

TECHNICAL

INDICATORS:

• Relative Strength

Index (RSI)

• Moving Average

Convergence

Divergence

(MACD) etc.

Below are a few Quantitative Parameters*:

8

Portfolio Construct

METHODOLOGY


UNIVERSE:

Apply the corporate governance filter to the S&P BSE 200 Index universe

FACTOR CONSIDERED:

The factors are dynamic in nature. Therefore, the Fund Manager will evaluate the factor/parameters

considered in the model on annual basis.

Model takes into consideration various macro indicators and fundamental parameters including Price to

Earnings, Dividend Yield, Return on Assets, Analyst Rating, etc.

WEIGHT TO EACH FACTORS:

Assign equal weights to all the chosen factor values to come up with composite factor value.

STOCK/SECTOR LEVEL CONSTRAINS:

Limit stock level weight to 10% and sector level weight to 30% on the higher side

9

Past performance may or may not sustain in the future. The performance of the scheme is benchmarked to the Total Return variant of the Index.

2020(YTD): As of October 31, 2020. Source: www.nseindices.com

Factors keep on rotating year on year

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (YTD)

31.1 -12.0 38.3 21.0 48.7 10.8 7.6 57.5 11.6 11.0 8.6

25.4 -14.3 33.3 13.4 39.1 10.0 4.7 37.7 8.2 8.6 7.7

24.9 -15.8 31.9 13.1 38.2 4.6 4.2 35.8 6.0 8.6 6.4

24.7 -16.1 31.0 11.8 36.6 3.6 4.0 31.8 5.8 7.6 5.8

18.2 -20.9 27.0 6.2 35.0 0.0 2.9 30.3 -1.5 5.6 3.6

15.2 -26.4 26.7 3.9 32.6 -5.8 2.1 23.5 -1.6 5.4 -1.7

The factor that plays out keeps on changing every year.

Value played out in 2010 and then directly in 2018 while Momentum

played out from 2014 through 2017.

Index Name

Nifty 100 Low Volatility 30 TRI

NIFTY 100 Quality 30 index TRI

Nifty 50 Value 20 TRI

Nifty 200 Momentum 30 TRI

Equal Weight To Each Factor

Nifty 500TRI

FACTOR

Volatility

Quality

Value

Momentum

10

http://www.nseindices.com/

Above is only for illustrative purposes

Screening - Illustration

• Negative screening excludes 30 stocks from S&P BSE 200 Index Universe

• Arranging remaining 170 stocks in descending order based on the composite scores

• Arriving at 30-60 stocks depending on the AUM of the Fund

Sr. No. Company AMFI Sector Factor 1 Factor 2 Factor 3 Factor 4Composite

Score

1 A Energy 1.00 0.80 1.00 0.85 3.65

2 B IT 0.90 0.85 0.90 0.85 3.50

3 C Financial Services 0.85 0.90 0.85 0.80 3.40

4 D Consumer Goods 0.90 0.70 0.65 1.00 3.25

5 E Financial Services 0.85 0.85 0.80 0.70 3.20

- - - - - - -

- - - - - - -

- - - - - - -

168 FL Financial Services 0.20 0.30 0.30 0.35 1.15

169 FM Construction 0.40 0.10 0.15 0.45 1.10

170 FN Automobile 0.30 0.20 0.15 0.35 1.00

11

Screening - Illustration

• Stocks selected shall be assigned score based on their market cap of Company and Composite Score

• Assigning weights based on market cap shall help manage the liquidity risk

• Also, stock and sector level limits of 10% and 30% to be imposed for risk management

ILLUSTRATION:

Sr. No. Company AMFI Sector Factor 1 Factor 2 Factor 3 Factor 4Composite

ScoreWeightage*

1 A Energy 1.00 0.80 1.00 0.85 3.65 4.4%

2 B IT 0.90 0.85 0.90 0.85 3.50 7.1%

3 C Financial Services 0.85 0.90 0.85 0.80 3.40 9.9%

4 D Consumer Goods 0.90 0.70 0.65 1.00 3.25 7.2%

5 E Financial Services 0.85 0.85 0.80 0.70 3.20 2.5%

- - - - - - - - -

26 AA Financial Services 0.70 0.60 0.40 0.30 2.00 0.3%

27 ZZ Cement 0.80 0.75 0.20 0.20 1.95 1.5%

28 AB IT 0.60 0.55 0.50 0.25 1.90 1.2%

29 AC Consumer Goods 0.55 0.50 0.30 0.50 1.85 1.0%

30 AD Financial Services 0.50 0.55 0.50 0.20 1.75 0.3%

100.0%*Weightage = Composite Score of each company x Free Float Marketcap |Above is only for illustrative purposes

12

Model Performance

Past performance may or may not sustain in future. All information contained in this slide is for illustration purpose only to show how quant models function. The model performance is derived

based on back tested result considering Price to Earnings, Dividend Yield, Return on Assets and Analyst Rating as parameters. The back tested result does not in any way indicate the

performance of the Scheme. The actual model and the Scheme portfolio shall be constructed based on the provisions in the Scheme Information Document. Data as of October 30, 2020.

Source: MFI Explorer

Calendar Year Returns (%)

Model outperformed the Benchmark 10 out of 14 times till 2019

13

19.9

65.2

(48.4)

132.7

23.0

(28.5)

52.3

1.3

71.1

1.8

18.3

49.1

(9.9)

2.6

18.7

62.3

(55.9)

90.9

17.8

(26.0)

33.2

6.1

37.4

(0.2)

5.4

35.0

0.8

10.4

2006* 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Model S&P BSE 200 TRI

2006* : AUG 31,2006 TO DEC 31, 2006

Model Performance – NAV Chart

Past performance may or may not sustain in future. All information contained in this slide is for illustration purpose only to show how quant models function. The model performance is derived

based on back tested result considering Price to Earnings, Dividend Yield, Return on Assets and Analyst Rating as parameters. The back tested result does not in any way indicate the performance of

the Scheme. The actual model and the Scheme portfolio shall be constructed based on the provisions in the Scheme Information Document. Data as of October 30, 2020. Source: MFI Explorer

REB

ASE

D T

O 1

00

879

425

0

100

200

300

400

500

600

700

800

900

1000

Model NAV 100 S&P BSE 200 TRI

14

Rebalancing

Rebalancing will be carried out during following scenarios:

AD-HOC

REBALANCE

PERIODIC

REBALANCE

• Ad-hoc basis to factor any:

• Adverse news

• Corporate Action

• Ratings downgrade etc.

• Annual review of parameters

of the quant model

• Portfolio to be rebalanced

to give effect to changes

suggested by quant model

• The portfolio will be

rebalanced on monthly

basis or quarterly basis.

15

Why invest in ICICI Prudential Quant Fund?

Passive Investing through a model

using a combination of factors

Team with prior experience in managing

quantitative models for asset allocation

Limited Human Intervention

to avoid any biases

Diversification across various

sectors, styles and businesses.

Systematic approach of investing by combining

investing experience and avoiding human error

16

Fund Manager Profile

ROSHAN CHUTKEY has a Masters in Finance degree

from London Business School.

Besides, he has done his engineering from IIT Madras and

MBA from IIM Lucknow along with completing the CFA

Program from the CFA Institute, US.

He has been associated with ICICI Prudential AMC from

February, 2015 and has 15 years of experience.

17

New Fund Offer Details

New Fund Offer

period

November 23 ,2020 to December 07, 2020

To generate long-term capital appreciation by predominantly investing in equity and equity

related instruments selected based on a quantitative model.

S&P BSE 200 TRI

Investment Objective

Benchmark

Minimum Application Rs. 1,000/- (plus in multiple of Re. 1)

SIP amount Daily, Weekly, Fortnightly, Monthly SIP: Rs. 100/- (plus in multiple of Re. 1/-)

Minimum installments: 6

Quarterly SIP: Rs. 5,000/- (plus in multiple of Re. 1/-)

Minimum installments – 4

Exit Load ENTRY LOAD:

Not Applicable.

EXIT LOAD:

1% of applicable Net Asset Value – redeemed within 3 months

Nil - if redeemed after 3 months

Fund Manager Roshan Chutkey

18

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Disclaimer: All figures and data given in the document are dated unless stated otherwise. In the preparation of the material contained in this document, the AMC has

used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from

members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and

material used in this document is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or completeness of

any information. We have included statements / opinions/ recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”,

“believe” and similar expressions or variations of such expressions, that are “forward looking statements”. Actual results may differ materially from those

suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market

risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and

interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc.

The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any

nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this

material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on this material.

Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of

subscribing to the units of ICICI Prudential Mutual Fund.


(An open ended equity scheme following Quant based investing theme.)

19

aim to build wealth by following a rule-based investing

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