MUMBAI:
Establishing realistic financial goals is the first step toward successful investing. Understanding the investment avenues best suited to helping you achieve your goals is equally important.
Mutual funds can fit well into either your long or short-term investment goals, but the success of one’s plan depends on the type of fund/s one choose. Having said that, UTI Equity Fund is an open ended equity scheme investing across large cap, mid cap, small cap stocks, having a corpus of Rs. 9,358 crores and trusted by over 12 lakh investors (as on April 30, 2019). This offering from UTI Mutual Fund is one such fund that any long term investor should be looking for their core equity allocation.
What makes UTI Equity Fund to stand out is the fund’s strong investment philosophy which is built around the three pillars of Quality, Growth & Valuation. 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 (RoCE) or Return on Equity (RoE) 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 these strong cash flows become the source of economic value creation.
“Growth” on the other hand signifies long term secular growth for the business. The fund emphasizes on businesses that have steady and predictable growth trajectory rather than cyclical and unpredictable growth. Cyclical growth or de-growth can be very sharp and unpredictable and can surprise investors in either direction, as against secular growth where there is relatively more certainty in understanding the long term drivers and hence future outcomes. While high quality businesses create economic value, a high growth business enables compounding of this economic value. It is for this reason that the fund’s favorite hunting ground for stock selection is the intersection of quality and growth.
The last pillar of the fund’s investment philosophy is “Valuations”. Valuations are very important as an entry point into a great business and therefore one should very carefully study this before entering a stock. Although a Price to Earnings (P/E) multiple is a good starting point for understanding the valuations of a business but it is also a widely misunderstood and abused valuation technique. More often than not a high RoCE and high growth business would deserve a high P/E and would still be an attractive investment for long term investors who invest on the basis of business fundamentals rather than on the basis of what would outperform in the next few months or quarters. Therefore before reaching to a judgement by looking at P/Es optically one has to carefully study the characteristics of each business and then establish the fair valuation band for each of them.
The Fund endeavor to invest across the market capitalization spectrum following the “Growth” style of investment. The scheme’s top ten holding consists of Bajaj Finance Ltd., HDFC Bank Ltd., Indus Ind Bank Ltd., HDFC Ltd., Kotak Mahindra Bank Ltd., Tata Consultancy Services Ltd., Infosys Ltd., Info-Edge (India) Ltd., Mindtree Ltd., and Shree Cement Ltd., which accounts for around 42% of the portfolio’s corpus as of April 30, 2019.
UTI Equity Fund would be suitable for those equity investors looking to build their “core” equity portfolio and seeking long term capital growth through investment in quality businesses that generate economic value.
