Both have performed dismally
PEER PRESSURE - AUTO FUNDS
The Indian auto sector hasn't been doing well of late and predictably, the two auto funds have been letdowns for the investors as well. The auto funds category has been the worst performing category of equity funds after the technology funds category. The category lost 10 per cent during the one year period ending March 19, 2008. Their returns were even lower than the debt and liquid funds.
While the two funds are similar in their dismal performances, they are quite different with their strategies. UTI Auto likes to have a portfolio of around 17-20 shares while JM Auto Sector is far more aggressive with only 12-15 shares.
This is a clear departure from the funds' earlier stance. When UTI Auto started out, it had around 30 shares in its portfolio, while JM Auto Sector had about 20-25 even a year after its launch. Both the funds have now pared down the number of shares in their portfolio.
However, UTI Auto has shown aggression in the concentration of its holdings. The top five holdings of UTI Auto form almost 68 per cent of its portfolio compared to 58 per cent for JM Auto Sector. Since both the funds do not have a large portfolio, the top ten holdings account for almost 85 per cent of their portfolios.
In its first year of its operation, UTI Auto looked like it had all the makings of a category buster. The fund rose more than its benchmark (BSE Auto) and lost less than the index in a downturn.
But the dream run was short lived once the fund manager quit in October 2005. But even without the frequent management changes, UTI Auto had never managed to rank up to its peer. JM Auto Sector has beaten UTI Auto every time, sometimes very convincingly.
For example, in 2007 when the auto sector was facing difficult times due to high inflation, high interest rates and credit squeeze, JM Auto Sector was still able to generate returns of 17 per cent compared to UTI Auto's loss of 0.96 per cent.
In the December 2007 quarter, UTI Auto's returns were 9 per cent compared to JM Auto's 17 per cent, though it did beat the BSE Auto's 6 per cent return during this period.
However in the recent stock markets crash, JM Auto suffered its biggest fall in a month. The fund was down by around 20 per cent in January 2008. Compared to this, UTI Auto lost 17 per cent in January 2008.
Needless to say, as the names of the two funds suggest, a majority of their assets are invested in the automobile and related sectors. The funds' investments in other sectors like basic/engineering and metal and metal products is also in companies related with the auto sector.
For example, companies like Exide Industries, Enkei Castalloy, Castrol India, Timken India are all related to auto sector where the funds have also invested.
Though both the funds are small in size, UTI Auto is four times bigger than JM Auto Sector. UTI Auto's assets have fallen from what it was when it started. Its assets under management was Rs 55 crore initially in April 2004, touched a high of around Rs 100 crore in April 2006 and is now at Rs 42 crore (at the end of February 2008).
For JM Auto Sector, the assets have not fluctuated much from the start although they are less from the initial corpus. JM Auto had AUMs of Rs 13 crore initially and fell to Rs 8.8 crore in July 2006. At the end of February 2008, its AUMs are at Rs 11 crore.
Regarding their cap preferences, JM Auto Sector leans towards small cap shares. In fact, mid and small caps account for 60 per cent of its assets. However, the fund has also started adding large cap stocks in its kitty after the new fund manager Asit Bhandarker took over in July 2007.
Unlike JM Auto Sector, UTI Auto is more of a large-cap player. During its initial years the fund leaned more towards pure mid and small-cap companies.
However, the fund spotted the large-cap rally in time and began moving towards large-cap companies by March 2006. Large cap companies account for over 60 per cent of its portfolio with shares like Tata Motors, Mahindra & Mahindra, Maruti Suzuki India, etc.
Though the auto sector has faced tough periods in the recent past, the sale of automobiles, particularly cars, can grow due to the rising income levels and peaking of interest rates. The recent reduction in excise duty on cars in the Budget can also boost the sagging sales of cars.