High returns, low volatility

Launched in June 2005, UTI Dividend Yield Fund is a diversified equity fund, with Rs 2,171 crore in assets under management as of May 2010. The fund has been ranked ‘Crisil CPR 1’ over the last seven quarters (ended March 2010) under the diversified equity funds category.

This consistency in rankings is an indication of a blend of superior performance and disciplined portfolio management. Crisil CPR 1-ranked funds form the top 10 percentile of Crisil’s ranked universe.

Performance
The fund is a steady performer with low volatility in returns. Its investment style — of holding stocks with high-dividend yields — provides stability, especially in volatile markets. Over a two-year period, the fund has exhibited a volatility of 29 per cent, as against 44 per cent for the benchmark index (BSE 100). It has also outperformed its benchmark index over different time frames. Over the one- and three-year time frame, the fund has yielded returns that are almost three times that of the S&P CNX Nifty. The scheme’s net asset value (NAV) since inception has appreciated almost three times, ie Rs 1,000 invested in the scheme would have grown to Rs 2,864 vis-à-vis Rs 2,518 in the benchmark index and Rs 2,524 in the peer set (see chart).

The fund’s strong performance on returns has been complimented by a lower volatility compared to its peers. The superior performance on the combination of returns and risk, relative to its peers, is a key factor in propelling it to ‘Crisil CPR 1’.

Portfolio diversification
A key attribute of the fund’s portfolio is its diversification across market capitalisation and its inclination towards high-dividend yielding stocks. The average number of stocks held over the last three years ended April 2010 was 45. At the sector level, the fund had an exposure to 26 sectors on an average over a period of three years.

Portfolio concentration is a measure of the relative proportions of different securities in a portfolio. Crisil’s assessment of industry and company concentration of equity funds is critical to assess risk mitigation in portfolio construction.

Sector trends
Banks and information technology (IT) have been the most preferred sectors in the fund’s portfolio, especially during the last one year, when the exposure to these sectors was almost-one third of the total portfolio value. Banks, automobile (two-wheelers) and IT were the biggest contributors to the total gains of the fund during the last one-year period.

Investment style
UTI Dividend Yield Fund is among the few funds that follow a defensive strategy of investing in companies that have both an impressive history of paying dividends and also high-dividend yields. Another important aspect of UTI Dividend Yield Fund’s investment style is the active cash calls that the fund has taken during the market downturn to limit downsides in the portfolio performance.

— Crisil Fund Services