The equity markets have soared to all-time highs with most business activity reigniting and the gradual revival in demand. The optimism surrounding vaccine for the COVID-19 pandemic has further lifted investors’ spirit.

Notably, the rally has been largely on the back of growth in some index heavyweights. There are various stocks/sectors in the broader market that have been severely impacted as a result of the pandemic.

Value funds seek to identify such undervalued stocks in various sectors, i.e. the stocks currently trading lower than its intrinsic/fair value, but with strong fundamentals and high growth potential. When the market realises true potential of value stocks, its prices soar and investors are rewarded with attractive gains.

UTI Value Opportunities Fund (UVOF) is a value fund that has recently caught the attention of the investors due to its outstanding performance over the last few years as compared to its category peers.

Graph 1: Growth of Rs 10,000 if invested in UTI Value Opportunities Fund 5 years ago

Data as on December 09, 2020
(Source: ACE MF) 

UVOF’s outstanding performance over the last couple of years and ability to stand strong against its popular peers has increased its potential of being a deserving value style candidate in one’s investment portfolio. Largely following value style of investing, UVOF also blends a slight essence of growth style and maintains significant exposure towards mid and small caps as well. In a scenario where value style was mostly out of favour, UVOF has evolved as a winner to fairly meet expectations of its investors. Though the fund has trailed its benchmark – Nifty500-TRI index, it has managed to outpace the category average across most time-frames. In the last 5 years, UVOF has generated returns of around 12.1% CAGR, as against 13.1% CAGR generated by the benchmark index. An investment of Rs 10,000 in the fund 5 years back would have now grown to Rs 17,727. A simultaneous investment in its benchmark would have been valued at Rs 18,482.

Table: UTI Value Opportunities Fund’s performance vis-a-vis category peers

Scheme Name	Corpus (Cr.)	1 Year (%)	2 Year (%)	3 Year (%)	5 Year (%)	7 Year (%)	Std Dev	Sharpe
UTI Value Opp Fund	4,931	19.72	15.77	9.72	12.12	12.85	21.94	0.072
ICICI Pru Value Discovery Fund	15,422	23.73	12.93	7.30	10.25	17.11	20.15	0.028
Nippon India Value Fund	3,160	16.10	11.60	5.28	11.03	15.79	23.93	0.019
JM Value Fund	122	13.78	13.27	4.96	14.04	16.63	23.62	0.015
Tata Equity P/E Fund	4,604	12.57	10.79	4.89	14.12	18.56	21.75	0.011
Quantum Long Term Equity Value Fund	792	13.59	6.26	4.36	9.81	11.65	21.12	-0.003
L&T India Value Fund	6,589	15.04	10.50	3.45	11.79	18.90	24.19	0.004
HDFC Capital Builder Value Fund	4,171	12.79	7.16	3.43	11.11	14.74	23.53	0.000
IDFC Sterling Value Fund	2,893	16.53	5.95	-0.30	10.76	14.90	28.75	-0.021
Aditya Birla SL Pure Value Fund	4,091	17.17	4.25	-5.39	8.00	17.40	25.42	-0.105
Nifty 500 – TRI		16.81	13.05	8.00	13.06	13.81	22.47	0.051

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 09, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

UVOF is a category outperformer that has generated superior returns in the last 2 to 3 years and maintained a steady lead over the benchmark. With an absolute return of over 19.7% in the last 1 year, the fund has found a spot in the list of top performers in the value style funds category.

Moreover, the fund has outperformed its benchmark as well as the category average by around 3 to 4 percentage points. Even on the longer time horizon of 3 years and 5 years, UVOF fared well vis-a-vis the benchmark and the category average.

In terms of risk-reward relationship, UVOF seems to be quite reliable. The level of volatility registered by the fund as indicated by its annualised Standard Deviation of 21.94% has been below category average and in line with the benchmark. The risk-adjusted return generated by the fund as denoted by its Sharpe ratio have been superior, compared to its benchmark and most of the value category peers.

Investment strategy of UTI Value Opportunities Fund

UVOF is a value style fund that aims to invest predominantly in undervalued stocks available at a discount to their intrinsic value. The fund looks to take aggressive sector positions, based on valuation considerations and on medium term growth prospects. Within individual sectors, the fund managers emphasize on fundamental characteristics of the company such as return ratios & healthy cash flows.

The fund managers look for opportunities in stocks where they believe cash flows or return ratios are likely to improve. UVOF has the flexibility to position itself more actively across the market cap spectrum. While the portfolio will have a large cap bias, the midcap exposure could vary more widely based on valuation differentials. Following a multi cap strategy, the wider universe helps the fund move seamlessly between stocks and ideas based on the changing market dynamics.

While building its portfolio, UVOF constantly hunts for opportunities across undervalued sectors and stocks and follows bottom up stock picking approach for selecting reasonably priced stocks of quality businesses.

Graph 2: Top portfolio holdings in UTI Value Opportunities Fund

Holding in (%) as on November 30, 2020
(Source: ACE MF)

As on November 30, 2020, UVOF held around 60 stocks in its portfolio. Large cap names like HDFC Bank and Infosys currently top the list of stocks with an exposure of 9.9% and 8.5%, respectively. ICICI Bank, Axis Bank, and Bharti Airtel follow closely behind with an allocation of about 4%-8% each. The top 10 stock holdings in the portfolio account for around 48% of its total assets.

In the last one year, UVOF has benefited immensely from its holdings in stocks like Infosys, Escorts, HDFC Bank, Jubilant FoodWorks, Coromamdel International, L&T Infotech, Gujarat Gas, Cipla Ltd., and Dr Reddy’s Laboratories, among others.

In terms of sector allocation, Banking and Finance stocks hold a combined weightage of around 30% in the portfolio, followed by Infotech, Pharma, Auto, Consumption, Telecom, Oil & Gas, Construction, and Power together holding another 53% allocation in the portfolio. Metals, Consumer Durables, Fetilisers, Cement, Engineering, Retail, etc. have been among the other prominent sections in the portfolio.

Suitability

UVOF’s superior performance has come under its experienced fund manager Mr Vetri Subramaniam who has been with the fund for nearly 4 years now. Moreover, the process-driven investment approach has helped maintain portfolio of quality stocks that has resulted in uptrend performance for the fund over the last few years.

It follows the buy-and-hold investment strategy and remains unmoved by the market momentum. While certain bets of the fund may not pay off immediately, it may witness bouts of short-term underperformance. However, its buy-and-hold strategy in fundamentally sound stocks can enable the fund ride the high market volatility. This makes UVOF suitable for investors with high risk appetite and an investment horizon of at least 5 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here