UTI Power of Three

UTI Power of Three

Mutual Fund industry in the recent past perhaps has seen a sea change in the process of categorization and rationalization of its products to bring simplicity and uniformity in its product offering. With this initiative although the industry has witnessed some sort of turbulence, it is all set for the next leap of growth in the coming years. Similarly UTI Mutual Fund which has always believed in true to label products has utilized this opportunity to offer clear and distinct products. 

“UTI Power of Three” is an exercise where the impetus is on building one’s “CORE” equity portfolio employing 3 distinct investment styles. The three funds which the “UTI Power of Three” is focusing on is UTI Mastershare Unit Scheme, Large Cap Fund - An open ended equity scheme predominantly investing in large cap stocks following the Growth at Reasonable Price (GARP) style of investment. 

Second fund is UTI Equity Fund, Multi Cap Fund - An open ended equity scheme investing across large cap, mid cap, small cap stocks which follows the “growth” style of investment and the third one is UTI Value Opportunities Fund, An open ended equity scheme following a value investment strategy. UTI believes that to have a well balanced portfolio, one should have all the 3 distinct investment styles, albeit the allocation would be dependent on the investor’s risk profile or preference.

Following are the key highlights of the 3 funds and their investment styles:

UTI Mastershare Unit Scheme:

India’s first equity oriented fund launched in October 1986, is a large cap equity oriented scheme following the Growth at Reasonable Price (GARP) investment style, focuses on buying companies at attractive valuations relative to the growth potential. The 3 underlying tenets of the portfolio strategy would be:

1.  the market is underestimating the companies’ ability to sustain growth over much longer phase or the benefits of pricing power

2.  the growth trajectory is improving through industry wide phenomenon like favorable demand cycle, consolidation, clearances of regulatory hurdles or through the company specific factors like cost competitiveness, prudent capacity expansion

3.  the business is capital intensive but  the companies invest prudently, execute efficiently the relative valuation within the sector is attractive

UTI Equity Scheme: 

A multi cap scheme investing across the market capitalization spectrum following the “Growth” style of investment. The portfolio strategy would be to focus on high quality businesses that have an ability to show strong growth for a long period of time and are run by seasoned managements. “Quality” signifies the ability of a business to sustain high Return on capital employed (RoCEs) or Return on Equity (RoEs) over a long period of time. Truly high quality businesses are those that are able to generate high RoCEs and also RoEs even during difficult times for their industry or sector and therefore operate above their cost of capital at all times. More often than not, a business with high RoCE/ RoE shall be able to generate strong cash-flows and therefore generate economic value. The Fund would follow a bottom up stock selection with well-defined metrics of free cash flows, capital efficiency and ability to compound earnings

UTI Value Opportunities Fund: 

A multi cap scheme investing across the market capitalization spectrum following the “Value” style of investment, where “Value” is buying things for less than their intrinsic value. Intrinsic value is simply the current value of the cash flows that the company generates for its shareholders over a period of time. Undervalued businesses can be found at two ends of the spectrum.

·     At one end the market may under appreciate the sustainability of competitive advantages and/or the length of the growth runway for the company. These companies defy the norm of cyclicality and reversion to mean.

·     At the other end of the spectrum there are companies that may be experiencing challenges due to cyclical factors, changes in the environment or their own past actions. But if the core business is healthy and a path to a better future (cash flows, return ratios) is visible then their depressed valuations offer an attractive entry point.

The opportunity in both cases is to buy something cheap relative to expectations. UTI Value Opportunities Fund would be focusing on companies having a high intrinsic value and the ability to generate cash flows over time.

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