Investors can hold their units in UTI Wealth Builder Series II (UTI Wealth), an equity-oriented scheme with a tinge of gold ETFs.

With a return of 16 per cent over a one-year period, the fund has comfortably beaten the 4.5 per cent category average of diversified equity funds and marginally beat its benchmark — a 65:35 combination of BSE-100 and gold ETFs respectively.

However, over a longer time-frame of, say, two years, the fund has not kept pace with the equity fund category, with gold acting as a drag at times. Fresh investments can be avoided until the fund demonstrates its ability to contain declines during prolonged down markets.

UTI Wealth seeks to invest at least 65 per cent of its assets in equities and up to 35 per cent in gold or debt. The fund invests in gold through units of UTI Gold ETF. The primary purpose of the gold holding is to act as a hedge during unfavourable periods in the equity market. The fund does not seek to otherwise actively manage its exposure to gold for short-term gains.

Suitability : UTI Wealth is suitable for investors looking to hedge their equity portfolio with gold. The latter as an asset class has been able to beat inflation in the last couple of years.

As the fund is an equity-oriented scheme, holdings over one year will not suffer capital gains tax, unlike gold ETFs. The fund is not suitable for investors looking for pure equity returns, as gold exposure could cap overall returns during strong equity rallies.

Performance : UTI Wealth's high exposure to gold both in the March 2009 lows as well as in November 2009 (16 per cent of assets in gold) have significantly curtailed its absolute returns from the lows then till date. While the fund's absolute return stood at 96 per cent between March 2009 till date, a good number of equity funds managed over 150 per cent returns.

The fund also marginally underperformed its hybrid benchmark (by 2 percentage points) over this period. Absolute return of gold ETFs over the above period was 37 per cent. Clearly, the gold holding does tend to cap returns during secular bull rallies in the equity market.

However, during the short correction seen between November 2010 and February 2011, the fund contained declines to 15 per cent, better than equity category average of 19 per cent. This is, however, too short a period to assess the fund's success in protecting downside.

Portfolio strategy : UTI Wealth does not have any market-cap bias. Stocks with a market-cap of less than Rs 10,000 crore accounted for almost a fourth of a portfolio.

While mid-caps as a category have underperformed broad markets, the fund has judiciously chosen some of the emerging large-caps such as Titan Industries and Petronet LNG that delivered hefty returns in the past year.

Exposure to stocks from the FMCG space as well as cement has been upped post-correction witnessed in these sectors. Exposure to gold ETFs, on an average, are at 10 per cent although they were close to 20 per cent during the equity market lows of early 2009.

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