UTI Opportunities Fund: Safety at the cost of opportunity

The fund’s focus on large-cap stocks reined in volatility but limited the returns

Within the multi-cap category, UTI Opportunities Fund has lagged the performance of its benchmark, S&P BSE 200, and category, over the past couple of years. A long-term steady performer known to cap losses well in bear markets, UTI Opportunities had a rough run, however, in 2015 and 2016. A relatively higher exposure to large-cap stocks and wrong stock bets appear to have weighed on the fund’s performance in recent times.

Losing out

UTI Opportunities Fund has always held more than 80 per cent of its portfolio in large-cap stocks. This relatively higher exposure to bluechips has helped the fund cap losses in volatile markets.

For instance, in the bear markets of 2008 and 2011, the fund fell 6-13 percentage points lower than its benchmark (BSE 100 then; benchmark was altered to BSE 200 in February this year).

In the lacklustre 2013 market too, it delivered better performance than its benchmark.

But the fund’s penchant for large-cap stocks appears to have hurt its performance in the past two years or so.

In 2015, for instance, while S&P BSE 100 fell about 3 per cent, BSE Mid Cap Index gained a little over 6 per cent. UTI Opportunities’ over 90 per cent allocation to large-cap stocks through most of the year led to its tepid performance.

Unfavourable calls

A few stock bets too did not work in its favour. Apollo Tyres, Bosch, L&T, Tata Motors, Tech Mahindra, Hathway Cable, & Datacom fell notably during the year. Banking stocks such as SBI, Federal Bank, ICICI Bank, Axis Bank, and Punjab National Bank also hurt its returns.

In 2016 as well the fund failed to cash in on the good run in mid-cap stocks — the BSE Midcap index managed to rake in nearly 7 per cent gains while BSE 100 delivered about 3 per cent returns. Some of the fund’s pharma and tech stocks, such as Infosys, Sun Pharma, Lupin and Persistent Systems, had an adverse impact.

Risk mitigating factor

Despite UTI Opportunities Fund’s recent under-performance, its overall long-term record has been steady. The fund has delivered 10-11 per cent return over seven and 10 years, beating its benchmark.

While the fund’s relatively large-cap exposure has hurt its performance, particularly in bull markets, the conservative approach can work in its favour in overheated markets.

The fund is well poised to tide over sharp downturns in the equity market if the ongoing rally starts to wane.

The fund has seen quite a bit of churn in its portfolio in 2017. Vetri Subramanian took over the management of the fund (managed earlier by Anoop Baskar) in February 2017.

The fund has increased stakes in stocks such as Bharat Forge, Federal Bank, HDFC Bank, ICICI Bank, Maruti Suzuki and IndusInd, which have gained handsomely year to date.

It has invested in stocks such as Coromandel International, Nalco, Vedanta, Container Corporation, and Bharti Airtel that have delivered notable returns so far in 2017.

It has exited stocks such as Lupin and Hathway Cable that hurt its performance in recent times.

The fund has over 50 stocks currently.

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