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Fresh investments can be considered in the units of UTI Dividend Yield Fund. The fund has been amongst the top performing large-cap schemes, thanks to its investments in consistent dividend paying stocks.
It returned an annualised 10.3 per cent and 10.7 per cent, respectively, over the three- and five-year periods. That is nearly three times as good as the return from investing in a portfolio of BSE 100 index stocks.
Suitability
Dividend yield funds typically focus on stocks that combine stable levels of profits with a higher payout compared with other stocks listed in a stock exchange. Such an investment focus is suitable for conservative investors, especially during periods of high volatility in the market.
Stocks under such a portfolio also tend to exhibit reduced volatility compared with the rest in the listed space.
UTI Dividend Yield Fund not only incorporates such characteristics in ample measure but also manages to give better returns.
On a one-year rolling return basis, the fund beat the benchmark 89 per cent of the time in the last four years.
UTI Dividend Yield Fund, however, lost value 39 per cent of the time in the last four years when returns are computed for rolling one-year period. BSE 100 index on the other hand incurred losses on 45 per cent of the time. Hence, the holding period needs to be more than three years for it to deliver good returns.
Investors can also take the SIP (systematic investment plan) route to taking exposure to the fund.
Performance and portfolio
During periods when the market as a whole declined sharply as, for instance, during early 2007, 2008-09 and 2010-11, the fund’s losses were lower than that of its benchmark.
During November 2010-December 2011 period, for instance, the fund lost 22.4 per cent as compared with 30 per cent loss for the index. The fund tends to increase cash and fixed-income securities during market falls.
The flipside to this is that the fund has been slow in catching up with the index during sharp rallies such as the current one where markets rose 20 per cent. The fund, during this period, gained only 14.5 per cent.
The portfolio during the last one-year period had relatively lower weights than the benchmark in pharma, FMCG (which had done well) and higher weights to capital goods and power utilities, which led to lower gains than the benchmark.
Focus on value stocks (consistent dividend players) would not aid the fund during the sharp market rallies, which is typically driven by growth and mid-cap stocks.
The fund increased its exposure to finance companies in the last one year while paring exposure to software, power and gas stocks.
Taking the opportunity of good valuations, the fund, in August, invested close to 94 per cent of its portfolio in equities — a multi-year high. Cash levels have declined to 2 per cent of the portfolio.
The fund holds more than 50 stocks and the top 5 sectors account for 51 per cent of the portfolio.
UTI Dividend has a low portfolio turnover indicative of its holding of stocks for a longer term. It has increasingly enhanced its focus to large-cap stocks with mid- and small-cap stocks (less than Rs 7,500 crore market capitalisation) currently accounting for only 10 per cent of the portfolio. The NAV of the fund is Rs 32.20.
> santosh.majeti@thehindu.co.in
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