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UTI Midcap Fund: Are there troubled times ahead?
Mon, Dec 28, 2015
Source : Jeni Shukla, Citrus Interactive

UTI Midcap Fund is an open-end diversified equity mid cap fund. The fund aims to generate capital appreciation from a diversified portfolio of mid cap stocks. The fund was launched in July 2005 and is benchmarked against the NIFTY MIDCAP 100 Index. The fund has an AUM of Rs. 3,338 crores as on November 30, 2015 which has gone up by 1,243 crores as compared to last year November 30, 2014 (Rs. 2,095 crores).

 

Performance:

UTI Midcap has an excellent performance track record of consistently outperforming its benchmark index and the equity diversified category average across all time frames as shown from the table given below. Its performance since inception has been better than its benchmark by over 3 percentage points. It has been in the top quartile of its peer-set across all time frames except 6 months (in which it is in the second quartile by a small margin).

Scheme Name

YTD

6 Months

1 Year

2 Years

5 Years

Since Inception

UTI Midcap Fund (G)

6.49

0.78

8.72

47.93

19.15

17.08

NIFTY MIDCAP 100 Index

5.28

0.52

6.94

31.27

8.26

13.97

Category Average

3.31

-1.03

3.42

28.68

11.68

NA

Rank

38/158

42/161

35/158

8/148

9/136

NA

Figures are in % as on November 30, 2015; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark and category average in all the last five calendar years except 2010. It has been a top quartile fund in each of the last three years.

Scheme Name

2010

2011

2012

2013

2014

UTI Midcap Fund (G)

18.94

-23.92

41.55

9.69

90.44

NIFTY MIDCAP 100 Index

19.16

-31

39.16

-5.1

55.91

Category Average

19.64

-23.95

34.05

5.43

53.99

Rank

70/131

76/138

30/142

20/146

7/149

All figures in %

Risk: In terms of measures of risk such as standard deviation (measured over last three years), the fund has taken higher risk compared to the category whereas in terms of beta (measured over last three years) the fund has taken lower risk.

 

Standard Deviation

Beta

UTI Midcap Fund (G)

0.98

0.76

Category Median

0.95

0.89


Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided much higher risk-adjusted returns compared to the category median.

 

Treynor

Sharpe

UTI Midcap Fund (G)

0.14

0.12

Category Median

0.07

0.07

 

Portfolio Characteristics:

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

UTI Midcap Fund (G)

18.56

27.13

45.09

Category Median

36.41

49.23

70.15

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is also significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

UTI Midcap Fund (G)

12.67

17.26

26.38

Category Median

18.7

27.22

44.12


Number of equity holdings: The fund currently holds 106 stocks in its portfolio (November 30, 2015), which is higher than the median stock count for the diversified-equity category, which currently stands at 46. Thus, based on equity count the fund runs a diversified portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 78.

In terms of sector and company concentration and number of equity holdings in the portfolio the fund runs a fairly diversified portfolio.

Cash allocation: Its cash allocation at the end of November 2015 was 7 per cent. The average cash allocation for last five years is around 5 per cent. Its maximum allocation to cash over last two years was 13 per cent in December 2014 and lowest was 2 per cent in June 2014. In 2015 it had an average cash allocation of 8 per cent. Thus on the whole the fund maintains slightly higher allocation to cash.

The top 5 sectors include Pharmaceuticals, Private Banks, NBFCs, Engineering – Construction and Auto Ancillary.

The fund’s exposure to cyclical stocks currently is 72% followed by Defensives with 15%  and Services with 5%. The Top five holdings are Mahindra & Mahindra Financial Services, SRF, Crompton Greaves, Titan Company and Eicher Motors.

Portfolio Action: In the last six months the fund has bought stocks of Aditya Birla Nuvo, J Kumar Infraproject, Exide Industries, IDFC (and hence IDFC Bank also) , Dish TV India, Minda Corporation, Oil India and Magma Fincorp.

Stocks of LIC Housing Finance, Kaveri Seed Company and Gujarat State Fertilizers & Chemicals have been dropped from the portfolio.

The fund needs to prune its exposure to some extent. For example as many as 27 out of the 106 stocks in the portfolio have less than 0.5% weight in the portfolio.


Process:

The Fund would invest, at least 65% of its Net Assets in equity instruments issued by companies which are constituents of CNX Midcap Index or CNX 500 but not a part of BSE Sensex (30) or Nifty (50), at the time of investment. Companies having an annual average market capitalisation of less than the floor specified in the benchmark Nifty Mid Cap Index would not be considered for investment. Also, no stocks, which are among the top 50 stocks in terms of market capitalisation, will form part of the aforesaid 65% of the net assets of the fund.

The fund’s expense ratio is 2.45% which is much higher than the category average of 2.36%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs 5,000.


Fund Manager

Anoop Bhaskar has 23 years of work experience in equity research and fund management, of which 19 years are with asset management companies. Prior to joining UTI AMC, Mr. Bhaskar has worked with Sundaram Asset Management, Chennai as Head-Equity, Templeton Asset Management as Senior Research Analyst, Shriram Financial Services Ltd. as Manager-Investments, Brisk Financial Services and Cross Borders Finance & Project. Mr. Bhaskar has assumed the role of Head- Equity at UTI AMC since April, 2007. Other schemes managed by him are UTI Equity, UTI Opportunities, UTI Transportation and Logistics and UTI Focussed Equity Fund – I & II.


View:

UTI Midcap Fund has a consistent track record. The fund manager has managed to pick high yielding stocks in the mid cap space. It is suitable for aggressive investors as part of their midcap allocation. The fund is also well diversified. The only flipside is its size is too large and hence its size should be watched. 

The fund manager will be leaving UTI in a month and his replacement will be keenly watched. In the case of a mid cap the quality of the manager is very important. To its credit, UTI has a good and experienced team of research analysts to back the investment team and if they find a suitable replacement for Anoop who is an accomplished mid cap fund manager, we can expect this fund to still live up to investors expectations.
 
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