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Why this equity mutual fund scheme is an all-weather friend

UTI Flexicap Fund is a good scheme to begin your investment journey into equities. Low volatility, consistent returns and a diversified portfolio

July 19, 2022 / 09:40 AM IST
Those new to the capital markets who wish to put money in basic and simple equity funds to begin with can look at flexi-cap or multi-cap funds to begin their investment journeys. UTI Flexicap Fund (UFF; earlier known as UTI Equity Fund) is one such scheme you could look at. This scheme is part of MC30, Moneycontrol’s curated basket of 30 investment-worthy mutual fund schemes. According to Securities and Exchange Board of India (SEBI) guidelines, a flexi-cap fund has the leeway to invest across large-cap, mid-cap and small-cap stocks. Depending on the fund manager’s reading of the market, she can choose her asset allocation between these three broad asset classes. UFF is the third largest flexi-cap fund, with assets worth over Rs 22,657 crore. Ajay Tyagi has been managing the fund since 2016.
Those new to the capital markets who wish to put money in basic and simple equity funds to begin with can look at flexi-cap or multi-cap funds to begin their investment journeys. UTI Flexicap Fund (UFF; earlier known as UTI Equity Fund) is one such scheme you could look at. This scheme is part of MC30, Moneycontrol’s curated basket of 30 investment-worthy mutual fund schemes. According to Securities and Exchange Board of India (SEBI) guidelines, a flexi-cap fund has the leeway to invest across large-cap, mid-cap and small-cap stocks. Depending on the fund manager’s reading of the market, she can choose her asset allocation between these three broad asset classes. UFF is the third largest flexi-cap fund, with assets worth over Rs 22,657 crore. Ajay Tyagi has been managing the fund since 2016.
Earlier, the scheme was part of the multi-cap category. After SEBI carved out the new flexi-cap class in 2021, the scheme converted itself into a flexi-cap fund. UFF follows a bottom-up approach of identifying growth stocks to invest in. Tyagi says: “The philosophy of the fund is to buy high-quality businesses that generate high return on capital employed, having strong balance sheets with little or zilch debt and high cash flows that are creating economic value.” Tyagi likes high-growth stocks and follows a buy and hold strategy.
Earlier, the scheme was part of the multi-cap category. After SEBI carved out the new flexi-cap class in 2021, the scheme converted itself into a flexi-cap fund. UFF follows a bottom-up approach of identifying growth stocks to invest in. Tyagi says: “The philosophy of the fund is to buy high-quality businesses that generate high return on capital employed, having strong balance sheets with little or zilch debt and high cash flows that are creating economic value.” Tyagi likes high-growth stocks and follows a buy and hold strategy.
This helped the scheme to deliver a better risk-adjusted return over the long term. Performance as measured by 10-year rolling returns calculated over the last 20 years shows that UFF delivered a compound annual growth of 15.8 percent while the Nifty 500 TRI (Total Returns Index) gave 13.5 percent. UFF delivered low returns between 2015 and 2018 because at the time, growth stocks underperformed value stocks. But it has made a comeback since.
This helped the scheme to deliver a better risk-adjusted return over the long term. Performance as measured by 10-year rolling returns calculated over the last 20 years shows that UFF delivered a compound annual growth of 15.8 percent while the Nifty 500 TRI (Total Returns Index) gave 13.5 percent. UFF delivered low returns between 2015 and 2018 because at the time, growth stocks underperformed value stocks. But it has made a comeback since.
UFF has participated reasonably during market rallies while containing downsides quite well during bearish phases. However, UFF was one of laggards within the category in the current market fall that started in October 2021. Tyagi attributes that the expected increase in interest rates impacted growth stocks much more. Tyagi also attributes his underperformance partly to cyclical stocks like commodities, real estate, metals, energy and state-owned banks doing well in this period; UFF had stayed away from them.
UFF has participated reasonably during market rallies while containing downsides quite well during bearish phases. However, UFF was one of laggards within the category in the current market fall that started in October 2021. Tyagi attributes that the expected increase in interest rates impacted growth stocks much more. Tyagi also attributes his underperformance partly to cyclical stocks like commodities, real estate, metals, energy and state-owned banks doing well in this period; UFF had stayed away from them.
Software, banks, finance and pharma have been the fund’s top preferred sectors. However, Tyagi explains that since he follows a bottom-up philosophy, sectoral weightages are an outcome of his stock selection rather than any view on sectors. He prefers to focus on secular growth businesses rather than cyclicals.
Software, banks, finance and pharma have been the fund’s top preferred sectors. However, Tyagi explains that since he follows a bottom-up philosophy, sectoral weightages are an outcome of his stock selection rather than any view on sectors. He prefers to focus on secular growth businesses rather than cyclicals.
Prudent stock selection helped the scheme. Most of Tyagi’s long-term holdings have paid off well. UFF is well-diversified. Stocks like Divi's Laboratories, Mindtree, Jubilant FoodWorks, Grindwell Norton and Astral more than tripled in value in the last few years
Prudent stock selection helped the scheme. Most of Tyagi’s long-term holdings have paid off well. UFF is well-diversified. Stocks like Divi's Laboratories, Mindtree, Jubilant FoodWorks, Grindwell Norton and Astral more than tripled in value in the last few years.
One-third of the portfolio has been allocated to mid- and small-cap stocks. Tyagi says that UFF is truly agnostic towards investing in large-, mid- or small-caps. The scheme does not take a call on which market-cap bucket will do well and he builds exposure in the best businesses across market-cap buckets.
One-third of the portfolio has been allocated to mid- and small-cap stocks. Tyagi says that UFF is truly agnostic towards investing in large-, mid- or small-caps. The scheme does not take a call on which market-cap bucket will do well and he builds exposure in the best businesses across market-cap buckets.
UFF has not traded much and follows a buy and hold strategy. This is reflected in its turnover ratio, which was just 9 percent (as of June 2022), the second lowest in the category. Many of its long-term holdings were multi-baggers and rewarded investors well. A low turnover shows fund manager conviction.
UFF has not traded much and follows a buy and hold strategy. This is reflected in its turnover ratio, which was just 9 percent (as of June 2022), the second lowest in the category. Many of its long-term holdings were multi-baggers and rewarded investors well. A low turnover shows fund manager conviction.
UFF can be part of your core portfolio with a time horizon of five years and more.
UFF can be part of your core portfolio with a time horizon of five years and more.
Dhuraivel Gunasekaran
first published: Jul 18, 2022 09:52 am
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