The Indian equity markets have been reeling under pressure and witnessing high volatility amid global uncertainties. While the equity market will continue to face high volatility in the near future, the recent sharp corrections may be considered as a buying opportunity for long-term investors. However, one should focus on diversification to benefit from opportunities across stocks, sectors, and market capitalisation.

Flexi-cap Funds follow a dynamic investment approach and have the flexibility to invest across market cap segments, as per the conviction of the fund manager. The flexible investment mandate allows fund managers to take advantage of changing market conditions to generate higher alpha for investors.

UTI Flexi Cap Fund is an actively managed Flexi Cap Fund that has stood the test of time and rewarded investors with reasonable risk-adjusted returns.

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

Past performance is not an indicator of future returns
Data as on July 05, 2022
(Source: ACE MF)  

Having a track record of over three decades, UTI Flexi Cap Fund is one of the oldest schemes in the Indian mutual fund industry. While UTI Flexi Cap Fund is not a great bull market performer and may even underperform during market rallies, it surely stands out during bear phases and depressed market conditions. The fund showed stability during the 2018 mid-cap crash, while it also showed a great breakthrough in its performance in the 2020 market crash. With this, UTI Flexi Cap Fund managed to generate a noticeable lead over the benchmark and the category average. In the recent bull phase, UTI Flexi Cap Fund showcased reasonable performance where it initially managed to outpace many of its category peers as well as the benchmark by a big margin but lost its gains when the market started correcting due to its significant exposure to IT and Pharma space. Over the last 5 years, UTI Flexi Cap Fund has registered a growth of around 13.2% CAGR as against 11% CAGR by its benchmark Nifty 500 – TRI, thus outpacing the benchmark by a noticeable margin.

Table: UTI Flexi Cap Fund’s performance vis-á-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	380	-1.08	45.09	27.35	16.07	17.71	25.89	0.26
Parag Parikh Flexi Cap Fund	22,647	2.45	28.06	21.55	17.37	15.75	20.30	0.25
PGIM India Flexi Cap Fund	4,236	-2.38	31.66	20.77	14.53	13.76	23.85	0.20
UTI Flexi Cap Fund	23,609	-7.26	25.37	15.91	13.16	11.75	22.83	0.15
JM Flexicap Fund	190	5.17	26.06	15.59	11.39	12.23	22.16	0.15
Union Flexi Cap Fund	1,063	-0.49	26.78	15.59	12.08	10.09	21.83	0.16
IDBI Flexi Cap Fund	368	2.31	25.53	15.15	10.83	10.48	21.13	0.16
Franklin India Flexi Cap Fund	9,492	2.91	30.32	15.06	11.00	10.96	24.24	0.14
Canara Rob Flexi Cap Fund	7,263	-0.88	24.25	15.02	13.35	11.93	20.58	0.16
DSP Flexi Cap Fund	7,395	-7.05	22.04	13.52	11.46	11.76	22.69	0.13
NIFTY 500 – TRI		0.29	25.77	13.00	11.04	11.07	23.11	0.13

Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on July 05, 2022
(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.

Prior to 2018, UTI Flexi Cap Fund was an average performer; however, the fund has evolved strongly over the last few years. With a CAGR of around 15.9% over the last 3 years and 13.2% over the last 5 years, UTI Flexi Cap Fund has generated an alpha of around 2-3 percentage points over its benchmark Nifty 500 – TRI. The fund stands among the top performers in the category over longer time periods. Though UTI Flexi Cap Fund has trailed the index and has underperformed many of its category peers in the last one year period, it has the potential to bounce back.

The fund’s volatility is nearly in line with the benchmark and the category average. Moreover, its Sharpe Ratio of 0.15 is ahead of the category average and the benchmark, signifying its ability to generate reasonable risk-adjusted returns.

Investment strategy of UTI Flexi Cap Fund

Classified under Flexi Cap Funds category, UTI Flexi Cap Fund is mandated to invest a minimum of 65% of its investment in equity & equity-related instruments with exposure across market caps. However, there is no minimum limit or restriction specified for any market cap segment. Positioned as a Flexi cap fund investing across the market capitalisation spectrum, UTI Flexi Cap Fund holds a portfolio spread across large-cap, mid-cap, and small-cap stocks but with predominant allocation to large caps.

The fund endeavours to pick high-quality businesses run by seasoned quality managements and those having the ability to show strong growth for a long period of time. It focuses on businesses operating in secular growth industries that can generate economic value through the cycle rather than cyclical industries, which are highly volatile. Accordingly, the fund looks for stocks of quality companies that can perform across market cycles and mitigate drawdown during depressed market conditions, whereas rebound faster based on the strong fundamentals of balance sheets & business models.

UTI Flexi Cap Fund follows a bottom-up stock selection process with well-defined metrics of free cash flows, capital efficiency and ability to compound earnings. It usually invests in a well-diversified portfolio of about 55-60 stocks.

Graph 2: Top portfolio holdings in UTI Flexi Cap Fund

Holding in (%) as of May 31, 2022
(Source: ACE MF)  

As of May 31, 2022, UTI Flexi Cap Fund held a well-diversified portfolio of 62 stocks. The fund held its top exposure in names like Bajaj Finance, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Infosys, collectively accounting for around 23.4% of its assets. Most of the names in the top-10 holdings have been the prominent candidates in the fund’s portfolio for over a year now. Notably, UTI Flexi Cap Fund has kept itself away from some of the index heavyweights like Reliance Industries, HUL, etc., and limits the top allocation to a single stock to well under 10%.

In the last one year, UTI Flexi Cap Fund benefitted from its holdings in Schaeffler India, Mindtree, Avenue Supermarts, Grindwell Norton, AU Small Finance Bank, and Titan Company, among others. On the other hand, it lost value in Samvardhana Motherson International, Indiamart Intermesh, Metropolis Healthcare, Dr Lal Pathlabs, HDFC Bank, etc.

Around one-fourth of the fund’s portfolio is allocated to stocks in the Banking and Financial sector. Infotech and Consumption follow with a respective allocation of 17% and 10.8%. Pharma, Engineering, Retail, Consumer Durables, Auto & Auto ancillaries, and Chemicals are among the other core sectoral holdings of the fund.

Suitability

UTI Flexi Cap Fund has shown a turnaround performance and made a mark in terms of returns by limiting the downside in the 2020 market crash and participating in the upside rally too. While the rally in large caps has been conducive for the fund’s growth, it has managed downsides well during volatile market conditions. Barring the recent underperformance, its superior outperformance recorded in extreme conditions in the past certainly cannot be ignored. The fund has the potential to bounce back strongly and is expected to carry its stellar performance ahead.

The superior performance recorded by the fund in the past has been driven by its smart sector and stock selection strategy. The fund manager has done well to keep volatility at a reasonable level and has delivered in terms of risk-adjusted returns.

UTI Flexi Cap Fund is suitable for investors looking for a prudently managed and relatively stable Flexi Cap Fund for long-term wealth creation.

This article first appeared on PersonalFN here