Fund pick: UTI MNC Fund

Portfolio concentration high, but returns superior

Launched on May 29, 1998, UTI MNC Fund has been consistently ranked CRISIL Fund Rank 1 since June 2011 under the Diversified Equity category. The fund has been in the top 30 percentile of CRISIL Mutual Fund Ranking (CRISIL Fund Rank 1 or 2) for the past 13 quarters. The fund, managed by Swati Kulkarni, had average assets under management (AUM) of Rs 292 crore for the quarter ended March.

Investment objectives
The fund aims at creating value through long-term capital growth by investing predominantly in equities of large-cap and mid-cap multinational corporations (MNCs) across diverse sectors. The fund has maintained an average equity exposure of 96 per cent in the past three years; out of which, 62 per cent has been in large-cap stocks and 38 per cent in small and mid-cap stocks.

Performance analysis
The fund has outperformed the benchmark (CNX MNC Index) and the category (represented by the Diversified Equity Funds under CRISIL Mutual Fund Ranking) over two, three, five, seven and 10 years. During the one-year time frame, the fund outperformed the category but marginally underperformed the index.

The fund has outperformed the benchmark during all market phases. During the bull phase of 2003-07, the fund gave annualised 43 per cent returns, compared with the benchmark's 35 per cent. During the sub-prime crisis (January 2008-March 2009), the fund gave negative annualised returns of 33 per cent, in line with the benchmark's. Post sub-prime crisis, the fund gave superior annualised returns of 56 per cent compared with the benchmark's 49 per cent. In the recent period (June 2013-April 2014) as well, the fund outperformed the benchmark by giving three per cent excess absolute return.

A monthly systematic investment plan (SIP) of Rs 1,000 for 10 years in this fund would be worth Rs 2.78 lakh today (on a principal investment of Rs 1.20 lakh), thereby generating annualised returns of 16.23 per cent. The same investment plan in the benchmark would have created a corpus of Rs 2.35 lakh, generating annualised returns of 13.10 per cent.

The fund has done well on risk parameters. It (12.27 per cent) was less volatile than the benchmark (18.32 per cent) over three years ended April 4. The Sharpe Ratio, a measure of the fund's risk-adjusted returns, is superior (0.84) compared with the benchmark (0.31). The Jenson's Alpha, a measure of the fund's risk-adjusted returns over the benchmark, is 7.11 per cent.

Portfolio analysis
The fund is concentrated at the stock as well as at the sector level when compared to the category. In the past three years, the fund has held 30 stocks on an average vis-à-vis the category's 46 stocks. Also, the fund's average exposure to the top five companies was 31 per cent compared with the category's average of 28 per cent. At the sector level, the fund's average exposure to the top five industries was 67 per cent, higher than the category's average of 58 per cent.

The fund has highest exposure to consumer non-durables (exposure at 29.40 per cent) followed by pharmaceutical (13.62 per cent) and automobiles (11 per cent). The fund remains overexposed to high performing sectors such as consumer non-durables, auto, pharmaceuticals and auto ancillaries to the extent of 21.50 per cent, 5.61 per cent, 5.23 per cent and 4.76 per cent respectively over the category, which has worked in its favour. The consumer non-durables (represented by the CNX FMCG Index) and pharmaceutical (CNX Pharma Index) industries have shown annual growth of 25.30 per cent and 18.91 per cent, respectively, whereas the auto industry (represented by the CNX Auto Index) grew by 14.52 per cent in the past three years.

Further, the fund is underexposed to the banking and petroleum products sectors to the extent of 14.50 per cent and 2.93 per cent, respectively. This has helped the fund escape a fall in performance as the banking sector (CNX Bank Index) has given flat annualised returns of 2.87 per cent and the S&P BSE Oil & Gas Index has lost 2.52 per cent. During the same period, the CNX MNC Index (benchmark) grew by 10.45 per cent.

In the past 36 months, the fund has retained 84 per cent of its average portfolio exposure. Stocks such as Eicher Motors, Hindustan Unilever and Glaxo Smithkline Consumer Healthcare returned 64.22 per cent, 28.22 per cent and 24.15 per cent, respectively, over the same time frame.