Given the vast universe of stocks out there, spotting the right wealth creators out of a plethora of options is not an easy task. While diversification is the key to sustainable investing, when it comes to a concentrated portfolio, ensure stock selection is done appropriately, as including unworthy stocks may spoil the overall performance of your portfolio.

Some mutual fund schemes prefer to allocate its assets with a focused approach only in selected high conviction stocks. Such schemes are called Focused Equity Funds. Investing in a focused fund with limited number of stocks across market caps/sectors and themes could potentially generate superior returns.

As mandated by the SEBI, a focused fund can have an exposure of maximum 30 stocks in their portfolio. These are high quality stocks handpicked by the fund manager.

UTI Mutual Fund has launched UTI Focused Equity Fund. It is an open-ended equity scheme investing in maximum 30 stocks across market caps. The scheme intends to build a concentrated portfolio of high conviction stocks with a unique three-pillar investment strategy. It has the flexibility to invest across market caps and sectors; this helps it to stay focused with a concentrated yet diversified portfolio.

Table 1: Details of UTI Focused Equity Fund

Type An open-ended equity scheme investing in maximum 30 stocks across market caps. Category Focused Equity Fund
Investment Objective The investment objective of the scheme is to generate long-term capital appreciation by investing in equity & equity related instruments of maximum 30 stocks across market caps. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.
Min. Investment Rs 5000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal Option
Entry Load Not Applicable Exit Load
  • Less than one year 1%
  • Greater than or equal to one year Nil
Fund Manager
  • Mr Sudhanshu Asthana
  • Mr Kamal Gada
Benchmark Index Nifty 500 Index (TRI)
Issue Opens: August 04, 2021 Issue Closes: August 18, 2021

(Source: Scheme Information Document

The investment strategy for UTI Focused Equity Fund will be as follows:

UTI Focused Equity Fund will predominantly invest in equity and equity related securities (maximum of 30 stocks) across the market capitalization spectrum. Considering the factors such as, but not limited to, business fundamentals, financial strength, sustainable cash flows, earnings growth potential, attractiveness of valuation, scalability of business, management quality, etc.

The investment strategy is to focus on companies with long-term sustainable growth. The endeavour will be to optimally diversify investments across the sectors and market capitalization. The fund will follow a blend approach wherein the portfolio will consist of both growth and value stocks.

The Fund Manager Mr Sudhanshu Asthana said, “Focused investing is all about high-conviction and our philosophy has two dimensions to generate portfolio alpha. The first is to hand-pick a select set of companies from the larger universe by relying on our ScoreAlpha investment philosophy aided by rich experience in research and fund management to separate the wheat from the chaff. Second is to build the portfolio to demonstrate the conviction by building significant portfolio positions in each company, which may accentuate the portfolio outcome.”

The fund manager will actively manage the fund and make investment decisions based on market outlook and emerging opportunities. The scheme will primarily rely on the bottom-up stock picking. However, it would use the top-down approach from a risk management perspective.

The scheme aims to meet its investment objective, while maintaining a balance between safety, liquidity and return on investments.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of UTI Focused Equity Fund

Instruments Indicative Allocation (% of assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and equity related instruments (Maximum 30 stocks) 65 100 High
Debt and Money Market instruments including securitized debt* 0 25 Low to Medium
Units issued by REITs & InvITs 0 10 Medium to High

(Source: Scheme Information Document

Who will manage UTI Focused Equity Fund?

Mr Sudhanshu Asthana and Mr Kamal Gada (for overseas investments) will be the dedicated fund managers for this scheme.

Mr Sudhanshu Asthana is Fund Manager – Equity at UTI AMC Ltd. His qualification are BA, MA Eco, & Diploma in Investment Management. He has over 21 years of work experience. Prior to joining UTI AMC, he was as an analyst with various organizations, Junior Fund Manager with SBI MF, and a Fund Manager with Barclays Wealth India Ltd. and Axis MF. At Tamohara Investment Managers, he worked in the capacity of CEO and CIO. He currently does not manage any other schemes.

Mr Kamal Gada is Senior Associate Vice President at UTI AMC Ltd. He is a CFA, CA, CS, and graduate and over 12 years of experience in Equity Research. Mr Gada began his career with BPCL as Senior Accounts Officer and later joined UTI AMC as Research Analyst. He is the dedicated Fund Manager for making overseas investments. He currently does not manage any other schemes.

Fund Outlook – UTI Focused Equity Fund

UTI Focused Equity Fund endeavours to build a concentrated portfolio of 30 high conviction stocks. It aims to have an optimal level of diversification across sectors and market caps. It is positioned with a distinct portfolio relative to broader market indices with the potential for alpha creation.

This objective of the scheme is to build a balanced portfolio by picking a core of long-term sustainable businesses, transformational opportunities, by re-aligning the strategy towards business and cyclical opportunities whenever valuations are attractive and gains can be made from the mean reversion.

The exclusion filters aid in avoiding weaker stocks and the concentration-driven position sizing could accentuate the portfolio outcome. However, do note that if the fund managers’ convictions prove worthy, investors are likely to benefit optimal returns. But if the bet goes awry, investors may suffer heavy losses due to the concentrated nature of the portfolio.

Therefore, it makes UTI Focused Equity Fund a high-risk, high-return investment proposition and is suitable only for investors with the appetite for higher risk this concentrated portfolio brings. You must ensure a long investment horizon of at least 5-7 years to survive the market volatility and your investment objective must be congruent with the fund.

This article first appeared on PersonalFN here

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