Fund call. UTI Equity: Putting up a consistent show

UTI Equity is a safe bet for those with a conservative bent of mind. The fund is large-cap oriented, contains downside well in iffy markets and provides reasonably good returns. It is a suitable fund for the core portfolio of investors, as well as for first-time investors.

Apart from the UTI Equity fund, the fund house has several funds benchmarked to the BSE 100 index — UTI Opportunities, Dividend Yield, Mastershare and Top 100 funds. While the dividend yield fund is thematic, the opportunities fund is designed to take advantage of opportunities across market capitalisations; only the remaining three funds (including UTI Equity) remain true to the benchmark, and focus predominantly on large-cap stocks across market cycles. UTI Equity stands out in this trio.

Over one, three and five years, the fund’s returns beat that of peers UTI Mastershare and UTI Top 100 by 2-3 percentage points. UTI Equity also outdid the BSE 100 index by 4-7 percentage points in these periods. The fund scores on consistency in outperformance as well. On a one-year rolling return basis, it has bettered the benchmark nine out of 10 times in the last five years.

The fund has managed to put up this show without taking undue risks. Even during rallies, such as 2012 or 2014, it kept its allocation to mid-cap stocks at a maximum of 15 per cent.

At the same time, it cuts down on mid-cap allocations when the skies turn grey. In the volatile markets of 2013, for instance, mid-caps constituted only about 10 per cent of the portfolio.

Secondly, in yo-yoing markets, it follows a defensive strategy to cut down on losses by holding only around 90 per cent of its assets in equities and/or upping allocations in defensive sectors, such as pharma or consumer non-durables.

The fund invests in anywhere between 50 and 80 stocks at a point in time. It usually holds 4-6 per cent stake in its top five stocks. Banks and software are the preferred sectors. After reducing exposure to banks since 2015 due to NPA worries, the fund has hiked stakes in better-placed private sector players, such as HDFC Bank, IndusInd Bank, YES Bank and Axis Bank in recent months.

Its tendency to go defensive in volatile markets is revealed in the increase in consumer non-durable holdings in the last one year. Holdings here have now moved up to 9.5 per cent from 5 per cent a year ago. However, with an eye on valuations, it has entered beaten down stocks, such as Colgate Palmolive. Its choices in the auto space also reflect its strategy of not getting into high PE stocks.

For instance, the fund entered Amara Raja Batteries in January 2016, post its correction and pared some stake in Eicher Motors, considering the sky-high valuation. It is betting on urban consumption through stocks, such as Asian Paints, Jubilant FoodWorks, Symphony, Pidilite, Havells and Titan.

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