UTI AMC prioritizes consistent returns and lower risk. While this has resulted in a slower growth trajectory; we view the consistency of internal process as a positive. The collaboration with T.Rowe Price seems to have worked positively for the fund house in terms of leveraging expertise on the research as well as the business side.
While the management team at the AMC has remained stable, Anoop Bhaskar’s departure in December 2016 as Head of Equity was a major setback. Vetri Subramaniam took his place early this year. He is an experienced and a skilled portfolio manager, as could be seen from his previous stint at Invesco, where he sailed through the global economic slowdown and built the business from scratch.
He is supported by a team of 6 portfolio managers and 8 research analysts; two of the 8 also act as co-managers. Each fund manager’s investment style has been aligned with that of the fund’s investment philosophy, so that the large number of funds managed by the AMC is clearly distinguished from each other.
UTI OPPORTUNITIES
- Category: Large Cap
- Star Rating: 4 stars
- Investment Style: Large Growth
- Fund Manager: Vetri Subramaniam since February 2017, following Anoop Bhaskar’s exit in December 2015 and then Swati Kulkarni’s management.
- Morningstar Analyst: Nehal Meshram
- Date of Analysis: August 2017
Subramaniam brought some effective changes to the fund’s investment strategy. The fund is now managed as a flexi-cap fund, versus a previous large-cap bias, by gradually increasing the allocation in the small/mid-cap space. He also has changed the fund’s benchmark to the S&P BSE 200 Index from the S&P BSE 100 Index with an objective to measure the fund performance with the correct benchmark. Subramaniam also ensured that all the strategies within the fund
house are well differentiated and has reorganised the equity team, aiming to push for style discipline among the managers.
The manager follows a mix of a top-down and bottom-up approach. While analysing sectors, the fund manager looks for fundamental characteristics of the companies, such as a long history of generating positive cash flows, superior
return on capital employed, and sustainable competitive advantages. He emphasises these factors more than the relative valuation while choosing stocks.
However, at times he does pay heed to the relative valuations and look for potential for mean reversal, focusing mainly on depressed stocks with low ROCE and return on equity.
Analyst Rating: Downgraded from Silver to Bronze
Over the past few years the fund has been struggling to outperform its peers. We need time to see some signs of a turnaround before we build our conviction.
However, with the recent restructuring and tweaking of the portfolio, we expect to see a positive outcome over the long run. We do believe in Subramaniam’s capabilities but would like to see more of his ability going ahead. Hence, while our long-term outlook for the fund remains intact, we choose to look at the short-term problems and have downgraded the fund.
UTI EQUITY
- Category: Large Cap
- Star Rating: 4 stars
- Investment Style: Large Growth
- Fund Manager: Ajay Tyagi since January 2016, following Anoop Bhaskar’s exit in December 2015.
- Morningstar Analyst: Nehal Meshram
- Date of Analysis: August 2017
The fund is mandated to allocate a minimum 80% of assets in large-caps and the portfolio is composed mainly of well-established names/market leaders in their respective sectors. The fund is clearly positioned in the growth part of the grid and Tyagi follows a bottom-up driven approach while selecting stocks.
His style is driven mainly by quality, growth, and valuation, where quality is represented by high and sustainable return on capital employed, growth by reinvestment of internal cash flows, and valuations determined by consistency in cash flow generation. Relying on relative valuations to make buy/sell decisions, he prefers stocks that are cheaper than peers' and historical valuations. He uses parameters such as enterprise value/earnings before interest, P/E, price/book,
return on assets, and return on equity, but is willing to be flexible with valuations, especially in rising markets.
The fund had always maintained a diversified portfolio with the number of stocks averaging 75, but recently the manager has brought this down to around 55 stocks, which is still higher that the median stock count for the category.
Analyst Rating: Downgraded from Silver to Neutral
The fund’s performance over longer time horizons is extremely good and it has eaten its benchmark as well as its Morningstar Category peers. However, the performance under Tyagi’s tenure is not very appealing. The fund underperformed both its benchmark and category average by a very
high margin.
Given the change in the fund management team, we think it is too early to build our conviction in the manager and his execution capabilities. The earlier fund manager, Anoop Bhaskar, was seasoned and one of the best large-cap managers in the industry. Under his leadership the fund has always been ranked in the top quartile. We believe that continuing to focus on quality will lead to superior risk-adjusted returns in the long run. However, for now we have adopted a cautious stance.
