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Fund analysis: UTI Equity: A good fit for your core portfolio
Wed, Aug 22, 2012
Source : Sanjay Kumar Singh, Citrus Interactive

UTI Equity is a large-cap growth fund that was started in May 1992, which makes it among the longest-running funds in the industry. Currently the fund has assets under management worth Rs. 1,973.16 crore.

Fund performance

Year-to-date (August 6) the fund is up 16.20 per cent. It is ahead of its benchmark index, BSE 100, by 2.61 percentage points. The fund has also beaten its benchmark over the one-, three-, and five-year horizons. Since inception the fund has given a compounded annual return of 27.58 per cent to its investors.

Scheme name

 

YTD

 

1-yr

 

3-yr

 

5-yr

 

Since inception

 

UTI Equity(G)

 

16.20

 

4.33

 

10.36

 

9.14

 

27.58

 

BSE-100

 

13.59

 

-1.11

 

2.80

 

2.91

 

--

All figures in %

Next, let us examine the fund's calendar year wise performance to see if it has been consistent.

Scheme name

 

2011

 

2010

 

2009

 

2008

 

2007

 

UTI Equity(G)

 

-19.52

 

20.50

 

82.87

 

-45.60

 

47.48

 

BSE-100

 

-26.01

 

15.66

 

80.30

 

-55.49

 

59.74

 

Outperformance

 

6.49

 

4.84

 

2.57

 

9.89

 

-12.26

 

All figures in %

The fund has beaten its benchmark index in four of the last five calendar years. The only year in which it lagged behind its index was 2007, when the fund gave a return of 47.48 per cent, falling behind its index by a considerable margin of 12.26 percentage points.

The fund has provided sound downside protection to its investors. In both the years in the recent past (2011 and 2008) when the markets declined, the fund fell less than its index. In 2011 it beat its index by 6.49 percentage points and in 2008 by 9.89 percentage points.

Portfolio characteristics

Number of equity holdings. Currently the fund holds 73 stocks in its portfolio. Its stock count is much higher than the median of 40 for the diversified-equity category. Thus, this is a highly diversified fund.

Over the past five years the fund has maintained an average equity count of 71.8 in its portfolio. In July 2009 its equity count rose as high as 86. The lowest that its equity count has fallen to in the past five years was 28 in November 2008 (in the aftermath of the Lehman crisis). The fund has by and large stuck to its highly diversified character.

Sector concentration. The fund’s concentration in the top three, five and 10 sectors in its portfolio is consistently lower than the median for the diversified-equity category.

 

Top 3

 

Top 5

 

Top 10

 

UTI Equity(G)

 

33.23

 

45.00

 

67.44

 

Median-diversified equity category

 

34.83

 

47.98

 

68.31

 

All figures in %

Company concentration. The fund’s concentration in the top three, five and 10 companies in its portfolio is also consistently lower than the median for the diversified-equity category.

Top 3

 

Top 5

 

Top 10

 

UTI Equity(G)

 

15.69

 

24.43

 

39.43

 

Median-diversified equity category

 

18.74

 

27.87

 

45.97

 

All figures in %

Thus, an examination of the number of equity holdings in its portfolio, sector concentration and company concentration makes it clear that this is a highly diversified fund. It does not run the risk that can arise from having too concentrated a portfolio.

Turnover ratio. According to its latest portfolio disclosure (June 2012), the fund had a turnover ratio of 38.66 per cent. This was almost half the median of 73 per cent for the diversified-equity category.

Over the past five years also, the fund has maintained a relatively low average turnover ratio of 66.41 per cent.

That the fund manages to fetch good returns while maintaining a low turnover ratio speaks highly of the fund manager's skills.

Expense ratio. Currently the fund has an expense ratio of 1.45 per cent which is far lower than the average of 2.24 per cent for the diversified-equity category.

Cash allocation. Over the past five years the fund has had an average cash allocation of 6.62 per cent. Cash allocation rose to a maximum of 23.92 per cent in November 2008 (in the aftermath of the Lehman Brothers’ collapse). Since May 2009 the fund’s cash allocation has remained in the single digit. The fund manager seems to have taken a conscious decision to avoid big cash calls.

Risk measures. On risk measures such as standard deviation and beta, the fund's figures are lower than the median for the diversified-equity category. Thus, this is a low-risk fund.

Standard deviation

 

Beta

 

UTI Equity(G)

 

0.9753

 

0.7988

 

Median-diversified equity category

 

1.0334

 

0.8076

 

Risk-adjusted returns. On measures of risk-adjusted returns, such as Sharpe ratio and Treynor ratio, the fund fares better than the median for the diversified-equity category.

 

Sharpe

 

Treynor

 

UTI Equity(G)

 

0.03360

 

0.04102

 

Median-diversified equity category

 

0.01537

 

0.02093

 

Fund performance

2011. In 2011 the markets declined: the Sensex fell -24.83 per cent, the BSE Mid-cap Index fell -34.78 per cent, and the BSE Small-cap Index fell -43.62 per cent. That year the fund's benchmark index fell -26.01 per cent. The fund did well to restrict its decline to -19.52 per cent.

In 2011 the fund maintained an average exposure of 82.96 per cent to large-cap stocks. It had a low average exposure of 8.20 per cent to mid-cap stocks and 1.66 per cent to small-cap stocks.

The fund started the year with a 2.49 per cent allocation to cash. This rose to 6.28 per cent by August before being brought down to 4.62 per cent. Overall during the year the fund had an average exposure of 4.54 per cent to cash, which is not high for a declining market.

In 2011 only the BSE FMCG Index turned in a positive performance (9.27 per cent). All the other sectors gave negative returns: BSE Health Care (-13.20 per cent), BSE IT (-15.62 per cent), BSE Teck (-16.52 per cent), BSE Consumer Durables (-18.13 per cent) and BSE Auto (-20.30 per cent).

In March 2011 the fund’s highest exposure (13.10 per cent) was to private banks. This was brought down to 11.86 per cent by December 2011. The fund had an allocation of 10.64 per cent to IT software in March, which rose marginally to 10.82 per cent by December. During the year the fund raised its exposure to pharma from 7.87 per cent in March to 9.77 per cent by December. Two sectors to which the fund reduced its exposure were refineries (from 7.18 per cent in March to 5.36 per cent in December) and public-sector banks (from 5.11 per cent in March to 4.82 per cent in December).

By December 2011 the fund was underweight compared to its index on private banks (by 2.73 percentage points), refineries (-2.37 percentage points) and cigarettes and tobacco (-1.67 percentage points). It was marginally overweight on IT-software (by 19 basis points), substantially overweight on pharma (4.70 percentage points), oil exploration (1.73 percentage points), and cement and construction materials (2.55 percentage points).

2012. Year-to-date the Sensex is up to 11.28 per cent, the BSE Mid-cap Index is up 18.26 per cent, and the BSE Small-cap Index is up 17.94 per cent. Year-to-date the fund is up 16.20 per cent while the BSE 100 Index is up 13.59 per cent.

This year the fund's allocation to large-cap stocks has averaged 86.38 per cent. Its allocation to mid-cap stocks has averaged 5.92 per cent and to small-cap stocks has averaged 1.63 per cent. Its cash allocation this year has averaged 3.83 per cent.

So far this year the best-performing sector indexes are BSE Bankex (up 29.30 per cent), BSE FMCG (25.94 per cent), BSE Health care (23.93 per cent), BSE Consumer Durables (20.72 per cent), BSE Capital Goods (20.70 per cent) and BSE Realty (19.10 per cent).

This year the fund has raised its allocation to private banks from 13.32 per cent in March to 14.12 per cent in June. It has also raised its allocation to pharma (9.06 per cent in March to 9.58 per cent in June), IT software (by 12 basis points to 9.53 per cent in June), public-sector banks (by 63 basis points to 6.11 per cent in June) and to cigarettes and tobacco (by 89 basis points to 6.06 per cent in June). It has marginally reduced its exposure to refineries (15 basis points to 5.31 per cent), cement and construction materials (by 38 basis points to 5 per cent by June) and to consumer food (by 21 basis points to 4.19 per cent).

Among its top holdings, the fund is substantially overweight compared to its index on pharma (by 4.51 percentage points), public-sector banks (by 1.37 percentage points), cement and construction materials (by 2.83 percentage points), and consumer food (by 3.36 percentage points). It is marginally underweight on private banks (by 47 basis points) and cigarettes and tobacco (92 basis points), and more substantially underweight on IT software (1.10 percentage points) and refineries (2.42 percentage points).

Fund manager

Anoop Bhaskar, who is also the head of equities at UTI AMC, has been managing this fund since April 2007. Among the other diversified funds managed by him, there is UTI Opportunities (which we have reviewed earlier) which has a distinguished track record. The fund house also has two small/mid-cap funds – UTI Master Value (good track record) and UTI Midcap (average track record).

We like many aspects of UTI Equity Fund. One, it is highly diversified, which means that it runs less risk than its more concentrated large-cap peers, and in our view, is better suited to be a core holding in your portfolio. The fund has also been quite consistent in its returns (barring the blip of 2007). It does not take big cash calls, so it is not likely to miss out on sudden upturns in the market. Other positive features of the fund are its low expense ratio (seventh-lowest among diversified-equity funds) and relatively low turnover ratio. This fund will be a suitable fit for your core portfolio.
 
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