The steady decline in COVID-19 cases, easing of lockdown restrictions, and progress in vaccination drives has facilitated improving investor sentiments over the past few weeks. Consequently, the equity market across market caps has witnessed a significant rally scaling new highs.

Though the long term growth prospects of the economy seem bright, there could be short term disruptions. For one, considering that the margin of safety has narrowed, an intermediate correction cannot be ruled out. So unless corporate earnings continue to improve, the markets could come under severe pressure.

If you do not want to assume higher risk in such a scenario, you could consider reassigning a higher allocation towards large-cap funds instead. Your investment in large-cap funds would not only add the much needed stability to your portfolio, but could also reap rewards in extremely volatile conditions. Preferably opt for the SIP mode of investment, which is a disciplined approach to wealth creation.

UTI Mastershare Fund (UMF) is a large-cap fund that has done well to contain the downside risk during bearish phases and reward investors with decent risk adjusted returns.

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

Data as on June 22, 2021
(Source: ACE MF)

Launched in October 1986, UMF is India’s oldest mutual fund scheme with a track record of almost 35 years. Categorised as a large cap fund, UMF predominantly invests in leading businesses with larger market capitalisation available at reasonable valuations after considering the expected earnings growth. The fund focuses on scalable businesses run by quality management. This strategy enables the fund to generate steady returns and mitigate the impact of volatility in bear and bull market phases. UMF’s past performance has been ordinary and it has at times even trailed the benchmark S&P BSE 100–TRI. However over the past one and a half year, UMF has shown a turnaround performance to stand strong vis-á-vis prominent peers in its category. In the last five years, UMF grew at a CAGR of 15.2% which is nearly in line with the 15.5% CAGR generated by the benchmark, S&P BSE 100–TRI, in the same duration. The fund manager does not frequently churn the portfolio and follows a buy-and-hold investment strategy to benefit from the long-term growth potential of large-cap companies

Table: UTI Mastershare Fund’s performance vis-à-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Canara Rob Bluechip Equity Fund 2,886 53.54 24.09 19.13 18.51 15.38 19.61 0.210
Axis Bluechip Fund 27,142 48.11 20.09 17.06 18.13 15.39 18.30 0.193
Kotak Bluechip Fund 2,642 58.48 21.39 16.36 15.48 14.97 21.95 0.163
Mirae Asset Large Cap Fund 25,721 54.45 18.33 15.78 17.27 16.40 21.76 0.161
BNP Paribas Large Cap Fund 1,097 46.89 19.08 15.76 14.86 14.28 19.26 0.175
IDBI India Top 100 Equity Fund 458 55.56 21.44 15.56 14.55 13.89 20.77 0.156
UTI Mastershare Fund 8,213 55.56 20.41 15.00 15.23 13.80 20.72 0.153
PGIM India Large Cap Fund 328 56.20 18.03 14.73 14.49 13.88 20.71 0.153
LIC MF Large Cap Fund 540 47.45 17.49 14.40 14.12 13.14 19.85 0.147
Edelweiss Large Cap Fund 247 52.90 18.62 14.23 15.61 14.24 21.27 0.148
S&P BSE 100 – TRI 56.08 17.93 14.50 15.51 12.71 22.21 0.146

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 22, 2021
(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.

During its journey spanning around three and half decades, UMF has positioned itself as a reliable fund having a steady track record. While the fund has been unable to generate a significant alpha over the benchmark during bull market phases, it has done well to contain the downside risks during bearish phases. In the last 1-year and 2-year period, the fund has maintained a decent lead of about 3-4 percentage points over the category average and that is reasonable when compared to the benchmark which has helped scale up its long-term returns.

UMF resists from taking undue risk. The volatility registered by the fund is nearly in line with the category average, though much lower than the benchmark index. Its Sharpe Ratio (0.15) and signifying risk-adjusted returns are slightly better than the category average and competitive to the benchmark.

Investment strategy of UTI Mastershare Fund

Classified under the Large-Cap Funds category, UMF is mandated to invest a minimum 80% of its assets in equity and equity related instruments of large-sized companies. Accordingly, the fund holds a predominant large-cap biased portfolio. It holds some allocation to mid and small-cap stocks as well. Aiming to avoid concentration risk, UMF invests in a diversified portfolio of 45-50 stocks spread across sectors in its portfolio. It takes the top-down view to determine sector weights and then uses the bottom-up approach for stock selection.

UMF endeavours to hold stocks in the portfolio with a long-term view; and it consequently has a low portfolio churning rate of 10-20%. The fund’s portfolio construction focuses on companies with a strong competitive franchise, with a micro focus on profitability and capital structure. It invests primarily in fundamentally strong companies by considering the factors such as, but not limited to, financial strength, sustainable cash flows, earnings growth potential, attractiveness of valuation, scalability of business, management quality, etc. It follows the Growth at Reasonable Price (GARP) investment style to invest in quality businesses at reasonable valuations.

Graph 2: Top portfolio holdings in UTI Mastershare Fund

Holding in (%) as on May 31, 2021
(Source: ACE MF)

UMF usually holds a fairly large portfolio of around 45-50 stocks. As on May 31, 2021, the fund held as many as 45 stocks in its portfolio, with the top 10 stocks together constituting around 48% of its assets. Infosys is currently its top holding having an allocation of 8.8%, closely followed by ICICI Bank and HDFC Bank. Other index heavyweights like HDFC Ltd., TCS, and Bharti Airtel are next in the list of top holdings having an allocation of 4% to 5%, respectively. Notably, 5 out of the top 10 stocks in its portfolio belong to the banking sector. Most of the stocks in its top 10 holdings have been part of the portfolio for over two years now.

UMF has benefitted immensely from its substantial holdings in stocks like Infosys, ICICI Bank, and HDFC Bank that have together contributed over 15% to its returns in the last 1 year. It has also majorly benefitted from its holdings in HDFC Ltd., TCS, SBI, Axis Bank, Asian Paints, Jubilant FoodWorks, Bajaj Finance, etc. among others.

In terms of sectors, Financials top the list of allocation with a combined allocation of 31.5% which includes exposure of 22.8% in Banks and 8.7% in Finance. Infotech, Consumption, Pharma, Auto, Engineering, and Telecom are the other core holdings in the fund’s portfolio with allocation in the range of 4-15%. The top 10 sectors together account for around 85.5% of its assets. UMF’s portfolio is fairly diversified across Cyclical and Defensive sectors along with Sensitive sectors.

Suitability

Focusing on quality stocks that have strong earnings growth potential, high cash flows, a competitive advantage coupled with valuation comfort, UMF has been able to keep volatility low and reward investors with reasonable risk-adjusted returns. This fund holds a portfolio that is fairly diversified at the stock level. Moreover, it has a reasonable exposure to cyclical, defensive, as well as sensitive sectors that can enable it to tide market fluctuations and aid in protection from downside risk.

UMF has an experienced fund manager at its helm – Ms Swati Kulkarni — who has been managing the fund for around 15 years. Under her supervision, the fund has stood strong during tough market conditions even though it may not be among the top performers during bull market phases.

UMF is suitable for cautious investors looking for a relatively stable large-cap fund that can offer decent capital appreciation over the long term.

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


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