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Citrus Analysis: UTI Mastershare: Be patient
Mon, Feb 25, 2013
Source : Sanjay Kumar Singh, Citrus Interactive

UTI Mastershare is a large-cap growth fund that was started in October 1986 (it is the industry’s oldest fund). Currently the fund has assets under management (AUM) worth Rs. 2,418.03 crore, which makes it the 17th-largest fund within the diversified-equity category. The fund has the unique track record of having paid dividends uninterrupted since its inception.

Investment approach

The fund follows a top-down investment approach. It aims to provide its investors consistent long-term returns. To prevent volatility in returns it avoids aggressive sector bets.

At any given time more than 80 per cent of the portfolio is invested in large-cap stocks. To contain risk, allocation to any sector is not allowed to exceed 25 per cent, while allocation to a single stock is capped at 7.50 per cent. Since 2009 the fund has avoided active cash calls. Allocation to cash can’t go beyond 10 per cent.

Fund performance

Scheme

1-month

3-month

6-month

9-month

YTD

1-year

3-year

5-year

Since inception

UTI Mastershare(G)

1.45

5.80

12.67

14.82

1.45

15.84

8.38

4.12

13.20

S&P BSE 100

1.94

8.37

16.49

15.62

1.94

17.03

6.43

2.15

All figures in %; as on Jan 31, 2013

The fund has lagged behind its benchmark over the last one year. But over longer time horizons, such as three years and five years, it has beaten its benchmark comfortably. Since its inception the fund has given a return of 13.20 per cent compounded annually.

Calendar-year returns. Next, let us examine the fund's performance over the last five calendar years to see if it has been consistent.

Scheme

2012

2011

2010

2009

2008

UTI Mastershare(G)*

24.88

-20.10

18.47

71.32

-50.47

BSE-100*

29.72

-26.01

15.66

80.30

-55.49

Out/under performance**

-4.84

5.92

2.81

-8.98

5.02

Figures in %; figures in %age pts.

The fund has outperformed its benchmark in three of the last five calendar years.

It failed to outperform its benchmark in 2012, lagging behind by a margin of 4.84 percentage points.

In 2009, the fund fell behind its benchmark index by about 9 percentage points. Swati Kulkarni, the fund manager, explains this underperformance thus: “If you dissect the 2009 market rally, prior to the elections the markets had already run up 40 per cent. After such a rally, one would typically like to wait for opportunities to deploy cash. We had a cautious approach because the world over there had been a lot of macro-economic turmoil. So we took time investing the cash that we were holding. The election results surprised us, especially the kind of mandate that the UPA government got. After the elections the markets ran up on the expectation that things would start moving on the economic front, and especially that infrastructure-related hurdles would be removed. We had a contrary view and so we underperformed for a short period. We continued to invest in stocks which we thought were not very policy dependent. That has subsequently helped us make up for that underperformance of 2009.”

Portfolio characteristics

Number of equity holdings. Currently the fund holds 43 stocks in its portfolio, which is almost equal to the median of 42 stocks for the diversified-equity category.

Over the last five years, the average number of equities in this fund's portfolio has been 44.75. The stock count has consistently been in the 40s over the last five years.

Sector concentration.

Scheme

Top 3

Top 5

Top 10

UTI Mastershare(D)

34.74

50.09

73.48

Median-diversified equity category

34.47

47.55

68.53

Figures in %

The fund's concentration in the top three sectors is almost at par with the median for the diversified-equity category, while in case of the top five and 10 sectors, it is higher.

Company concentration.

Scheme

Top 3

Top 5

Top 10

UTI Mastershare(D)

20.82

30.79

51.38

Median-diversified equity

18.50

28.26

45.52

Figures in %

The fund's exposure to the top three, five and 10 companies in its portfolio is higher than the median for the diversified-equity category.

Based on the above numbers—equity count, sector concentration and company concentration—one can conclude that the fund’s level of concentration is marginally higher than the median level for the diversified-equity category.

Turnover ratio. In December the fund had a turnover ratio of 16.45 per cent, which was much lower than the average of 90.98 per cent for the diversified-equity category.

The fund has always had a low turnover ratio: its average turnover over the last five years has been 23.29 per cent. In 2012 the turnover ratio averaged only 15.84 per cent.

That the fund manager has managed to create a reasonably good track record while engaging in such a low degree of churn speaks highly of her stock-picking skills.

Expense ratio. The fund has an expense ratio of 1.88 per cent, which is much lower than the median of 2.54 per cent (average is also the same) for the diversified-equity category of funds. The fund’s low cost is a positive for investors, especially in the wake of several other established large-cap funds raising their expense ratios to above 2 per cent.

Risk measures.

Scheme Name

SD

Beta (Slope)

UTI Mastershare(D)

1.091

0.832

Median-diversified equity category

0.948

0.797

The fund’s level of risk (calculated over the last three years ending January 2013) is higher than the median for the diversified-equity category.

Risk-adjusted return.

Scheme Name

Treynor

Sharpe

UTI Mastershare(D)

0.0293

0.0223

Median-diversified equity category

0.0282

0.0239

The measures for risk-adjusted return (also calculated over the last three years) hover around the median for the diversified-equity category: while the Treynor ratio is marginally higher than the median, the Sharpe ratio is marginally lower.

Portfolio strategy

Year-to-date (January 31, 2013) the fund is up 1.45 per cent, lagging behind its benchmark, the BSE 100 Index, which is up 1.94 per cent.

Over the one-year period ending January 2013, the best-performing indexes are as shown in the table below:

Benchmark

1-yr*

BSE SENSEX

15.71

BSE MIDCAP

18.72

BSE SMALLCAP

9.45

BSE FMCG

45.34

BSE Realty

31.06

BSE Consumer Durables

28.36

BSE BANKEX

28.00

BSE Health Care

26.53

BSE AUTO

18.96

BSE IT

10.66

BSE OIL & GAS

10.10

BSE TECk

9.25

BSE Capital Goods

6.40

BSE PSU

4.15

BSE Power

-6.00

*Returns are for one year ended Jan 31, 2013

Over the last one year, mid-cap stocks were the best performers, followed by small caps, and then large caps. As for sector performance, a mix of defensives and rate-sensitive sectors outperformed: FMCG, consumer durables and healthcare among defensives, and realty, banking and auto among rate-sensitives.

Over the one-year period ended January 2013, the fund’s allocation to large-cap stocks has averaged 91.24 per cent. The fund had a small (average 5.07 per cent) exposure to mid caps, and a minuscule 0.05 per cent (between February and September) to small caps. Its exposure to the ‘others’ category averaged 3.65 per cent.

Exposure to cash stood at a minuscule 0.12 per cent in January 2013. Its average cash exposure over the last one year has been 1.30 per cent.

Sector

February 2012 (%)

January 2013 (%)

Raised/lowered
allocation (%age pts.)

Bank – Private

13.35

16.58

3.23

Cement & Construction Materials

5.19

7.01

1.82

Pharmaceuticals & Drugs

7.97

9.53

1.56

Cigarettes/Tobacco

5.48

6.86

1.38

Bank – Public

4.10

4.85

0.75

Engineering – Construction

3.47

4.09

0.62

Refineries

8.23

8.34

0.11

IT - Software

10.10

8.63

-1.47

Gas Transmission/Marketing

4.00

0.99

-3.01

Oil Exploration

5.18

2.08

-3.10

Over the one-year period ending January 2013, the fund raised its allocation to private banks, cement and construction materials, pharma, cigarettes and tobacco, and so on. Among its top 10 sector holdings, the fund lowered its allocation to oil exploration, gas transmission and marketing, and IT software.

Sector

Fund (%)

S&P CNX Nifty (%)

Over/under weight
vis-à-vis benchmark (%age pts.)

Educational Institutions

3.31

3.31

Pesticides & Agrochemicals

2.41

2.41

Pharmaceuticals & Drugs

7.23

4.97

2.26

Automobiles - Passenger Cars

2.88

1.08

1.8

Bank - Public

4.88

4.36

0.52

Finance - Housing

7.15

6.66

0.49

Cigarettes/Tobacco

8.95

8.71

0.24

Bank – Private

15.83

16.92

-1.09

Oil Exploration

2.78

4.03

-1.25

IT - Software

11

13.14

-2.14

By the end of January 2013, the fund was overweight vis-a-vis its benchmark on sectors like pharma, auto (passenger cars), public banks and so on. Among its top 10 sector holdings, it was underweight vis-a-vis its benchmark on sectors like IT software, oil exploration and private banks.

Next, let us turn to the fund's stock allocations.

Company

February 2012 (%)

January 2013 (%)

Raised/lowered
allocation (%age pts.)

ICICI Bank Ltd.

5.53

7.15

1.62

ITC Ltd.

5.48

6.86

1.38

HDFC Bank Ltd.

6.04

6.81

0.77

State Bank Of India

4.10

4.85

0.75

Sun Pharmaceutical Inds. Ltd.

3.73

4.38

0.65

Housing Development Finance Corporation Ltd.

3.00

3.58

0.58

Reliance Industries Ltd.

5.10

5.11

0.01

Tata Consultancy Services Ltd.

4.01

3.77

-0.24

SKF India Ltd.

3.44

3.02

-0.42

Infosys Ltd.

6.09

4.86

-1.23

Over the last one year, the fund has raised its allocation to stocks like ICICI Bank, ITC, HDFC Bank and so on. Among its top 10 stock holdings, it has lowered its exposure to stocks like Infosys, SKF India and TCS.

Company

Fund (%)

BSE-100 (%)

Over/under weight
vis-à-vis benchmark (%age pts.)

Asian Paints Ltd.

4.01

0.91

3.10

Sun Pharmaceutical Inds. Ltd.

4.38

1.36

3.02

State Bank Of India

4.85

2.57

2.28

ICICI Bank Ltd.

7.15

5.59

1.56

HDFC Bank Ltd.

6.81

5.34

1.47

Tata Consultancy Services Ltd.

3.77

3.56

0.21

ITC Ltd.

6.86

7.03

-0.17

Infosys Ltd.

4.86

5.78

-0.92

Reliance Industries Ltd.

5.11

6.63

-1.52

Housing Development Finance Corporation Ltd.

3.58

5.32

-1.74

Figures for January 2013

By the end of January 2013, the fund was overweight vis-a-vis its benchmark on stocks like Asian Paints, Sun Pharma, SBI, ICICI Bank, HDFC Bank and TCS. Among its top 10 holdings, the fund was underweight vis-a-vis its benchmark on HDFC, Reliance Industries, Infosys and TCS.

Fund manager

Swati Kulkarni has been managing this fund since December 2006. She manages several other funds also such as UTI MNC, UTI Dividend Yield Fund, UTI Long-Term Advantage and UTI Top 100. Of these UTI Dividend Yield Fund is a high performer.

UTI Mastershare has a good long-term track record. This may be attributed to the fact that it sticks to its mandate: it does not allow its large-cap exposure to decline below 80 per cent, and it eschews aggressive sector bets which have the potential to make returns volatile and erode the wealth that has been generated. Two, the fund's sound long-term track record may be attributed to the fund house’s processes, which are detailed and collaborative.

We like the fund’s conservative large-cap investment approach that eschews aggressive sector bets, low turnover and relatively low expense ratio. All these factors make it a good candidate for your core portfolio. While the fund has faltered in the past one year (the fund holds large-caps while over the past one year mid-caps have rallied more), with fund manager Swati Kulkarni at the helm, we feel there is a high probability that it will give sound long-term returns. Be patient.

To see the scheme profile click here and Choose 'UTI' for AMC, 'Equity - Large-Cap' for Category and "UTI Mastershare" for Scheme and click on go.

You can read the previous review of the fund here

 
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