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I prefer to hold small quantities in several stocks, especially with mid- and small-cap holdings, as it will help us exit once our price target is reached.
Mr Anoop Bhaskar, Head of Equity at UTI Mutual Fund talks about the performance of UTIMF’s equity schemes and how the funds have weathered the recent market volatility.
UTI Equity Fund traditionally held 40-45 stocks before you took over the fund. It now holds 70-75 stocks. Why have you widened your portfolio holdings?
I always prefer to hold small quantities in several stocks, especially with mid- and small-cap holdings, as it will help us exit once our price target is reached. Again, we will add new stocks to the portfolio. Since the market was over-heated last year, we preferred to hold between 0.5 per cent and 1.0 per cent of the assets in many stocks to protect value.
Does not too much diversification affect performance in a bull market?
Performance really does not depend on how many stocks you hold. In my previous assignment, I held close to 100 stocks and still the fund was the top performer in the category. So it’s only a question of how you select stocks that matters.
You may say that selecting 100 or 200 stocks is difficult. But if we are bullish on a sector — say, ferro alloys — instead of selecting one stock, I would rather pick 2-3 stocks and balance the portfolio. Diversification is not a defensive measure. It is about selecting the right sector and diversifying risk.
Consumer goods accounts for one-fifth of your latest portfolio. Do you have a bullish view on FMCG stocks?
We moved to consumer goods as a defensive bet and expect some re-rating in the sector. Within the space, we have a higher exposure to ITC and Nestle. Investors will consider investments in the sector for the short to medium term, say, 3 -6 months, as a defensive bet rather than based on earnings as such. When investors become more confident, they may move out of FMCG to sectors that have more potential.
How has UTI Midcap withstood volatility in the mid-cap space?
In the last few months, the mid-cap space as a whole has corrected about 26-27 per cent; we have lost about 200 basis points more than that. In some stocks, we have a large position, say 4- 5 per cent. As matter of policy, we do not scale up exposure to any stock beyond 5 per cent. We could not buy into some of the stocks in which we had a large position, even though prices corrected sharply, because we did not have cash reserves. Prior to the correction, several stocks ran up quite sharply and we were not able to identify good stocks at attractive levels. But we did acquire some ferro-alloy stocks early in the mid cap fund. We expect some good numbers in next 2-3 quarters, which could be significantly higher than the street expectations.
Under current market conditions, what is your advice to the investors? Is it better to stay with large-caps or have a mix of large- and mid-caps?
That is based on one’s ability to withstand volatility. Normally, we say 100 minus one’s age will determine one’s equity allocation, but this cannot be applied to everyone. If you are 80 years old and have accumulated assets, taking a 10-15 per cent bet on mid-cap stocks is okay.
But if you are 30 and have no savings and want to invest all your money in the equity market, then it is a risky proposition. Equity is volatile and, at times, will give negative returns, so one’s risk-taking ability and disposable income has to be taken into consideration before going in for investment in equity.
UTI Master Value Fund, despite being a value fund, has corrected more than UTI Equity Fund. What is your comment?
This fund is more like a flexi-cap fund. It invests 75 per cent in mid-cap stocks and the rest in large-caps.
SURESH PARTHASARATHY
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