UTI Equity: Invest

A bias towards large-cap stocks, a consistent track record and an ability to bet on winning sectors means that UTI Equity has all the ingredients that make for a safe investment in the hugely volatile market conditions at present. Those with limited appetite for risk can buy units of this fund.

Strategy and performance

UTI Equity takes heavy exposure to large-caps (stocks with market capitalisation of Rs 7,500 crore and above) across market cycles.

This approach is useful in such uncertain times such as now, where large-caps provide greater visibility to revenue and earnings growth. About 87 per cent of the current holdings are in large-cap stocks with the portfolio sporting average market capitalisation of Rs 57,000 crore.

A large-cap bias also helps in limiting the downside in bearish phases in the market as can be seen from the fund’s performance during the downturns of 2008 and 2011. While its benchmark, the BSE 100 index, lost about 55 per cent of its net asset value in the 2008 bear market, UTI Equity managed to restrict its loss to 45 per cent. Similarly, in the 2011 fall, the fund lost about 6.5 percentage points less than the benchmark.

The fund’s tendency to reduce equity exposure and increase debt/cash holdings during protracted falls also lent a helping hand in containing losses.

However, these defensive strategies imply that the fund may not be an outperformer during secular rallies. In the March 2009 to November 2010 rally, for example, it just about managed to meet the returns of its benchmark.

But the fund scores high on consistency. It has beaten the returns of its benchmark 88 per cent of the time in the last five years. Over longer timeframes of three and five years, it has bettered the BSE100 returns by 4-5 percentage points. This makes UTI Equity a top quartile performer in the category of diversified equity funds during these periods.

Portfolio

The fund’s sector calls in the last three to four years have worked in its favour. For instance, it rightly heightened exposure to auto/auto ancillaries and software in 2009-10 and reduced capital goods exposure by mid-2011.

It also held about 13 per cent consistently in consumer non-durables throughout 2011 and 2012.

Its recent moves too, lend confidence. It has pruned exposure to the banking sector, especially in stocks such as SBI and Punjab National Bank due to the asset quality concerns in this space. The fund has also cut down on consumer non-durables, considering the rocketing valuations. On the other hand, it has stepped up once again on software, a sector that will benefit from the falling rupee.

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