UTI Mastershare Fund: Gaining From Resilient Business Models
Jan 13, 2022
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Large-cap mutual funds category generated an average return of 27.3% (absolute) in the calendar year 2021. Though the returns are much lower than that of Mid-cap Funds and Small-cap Funds, it is important to note that Large-cap Funds carry relatively lower risk and therefore, returns are modest. In investing, high returns usually come with high risk.
Since Large-cap Funds invest in well-established businesses that are generally market leaders, the category can generate stable returns even during phases of market volatility. Thus, Large-cap Funds should form a vital part of every investor's portfolio.
However, it would be imprudent to assume that Large-cap Funds do not carry any risk. This makes it important to invest in Large-cap Funds that have a well-diversified portfolio of stocks and sectors to mitigate the impact of any potential risk such as market volatility.
UTI Mastershare Fund is a Large-cap Fund that has shown a turnaround performance and is well placed to compete with its prominent peers without exposing investors to undue risk.
Graph 1: Growth of Rs 10,000 if invested in UTI Mastershare Fund 5 years ago
Launched in October 1986, UTI Mastershare Fund is India’s oldest mutual fund scheme. Categorised as a Large-cap fund, UTI Mastershare Fund predominantly invests in leading businesses with larger market capitalisation available at reasonable valuations after considering the expected earnings growth. During its journey spanning over three and half decades, UTI Mastershare Fund has positioned itself as a reliable fund having steady track record. While the fund has not generated significant alpha over the benchmark during bull market phases, it has done well to contain the downside risks during bearish phases. In the last five years, UTI Mastershare Fund grew at a CAGR of 18.4% which is nearly in line with the 17.9% CAGR generated by the benchmark S&P BSE 100 - TRI over the same time period. An investment of Rs 10,000 in UTI Mastershare Fund five years ago would have now appreciated to Rs 23,237.
Data as on January 12, 2022
(Source: ACE MF)
Table: UTI Mastershare Fund's performance vis-a-vis category peers
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on January 12, 2022
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
Although UTI Mastershare Fund has a very long term track record of average performance, its near term performance looks encouraging. In the last 1-year and 2-year period, the fund has maintained a noticeable lead of around 3 percentage points over the category average as well as the benchmark. Its robust performance in the last couple of years has helped scale up its long term returns. Over the longer 5-year and 7-year period, the fund's performance is nearly in line with the benchmark and the category average.
UTI Mastershare Fund resists taking undue risk. The volatility registered by the fund is nearly in line with the category average, though much lower than the benchmark index. Its Sharpe Ratio of 0.23, signifying risk-adjusted returns, is well ahead of the category average as well as the benchmark.
Investment strategy of UTI Mastershare Fund
Classified under the Large-cap Funds category, UTI Mastershare Fund has the mandate to invest a minimum of 80% of its assets in equity and equity-related instruments of large-sized companies. Accordingly, the fund holds a predominant large-cap biased portfolio. It holds some allocation to mid and small-cap stocks as well. Aiming to avoid concentration risk, UTI Mastershare Fund invests in a diversified portfolio of 45-50 stocks spread across sectors in its portfolio. It takes a top-down view to determine sector weights and then uses a bottom-up approach for stock selection.
UTI Mastershare Fund endeavours to hold stocks in the portfolio with a long term view, and consequently, it has a low portfolio churning rate of 10-30%. The fund's portfolio construction focuses on companies having strong competitive franchise, with focus on profitability and capital structure. It invests primarily in fundamentally strong companies by considering the factors such as, but not limited to, financial strength, sustainable cash flows, earnings growth potential, the attractiveness of valuation, scalability of business, management quality, etc. It follows the Growth at Reasonable Price (GARP) investment style to invest in quality businesses at reasonable valuations.
Graph 2: Top portfolio holdings in UTI Mastershare Fund
Holding in (%) as of December 31, 2021
(Source: ACE MF)
As of December 31, 2021, UTI Mastershare Fund held 49 stocks in its portfolio, with the top 10 stocks constituting around 48.3% of its assets. Infosys is currently the top holding having an allocation of 9.6%, closely followed by ICICI Bank and HDFC Bank. Other index heavyweights like Bharti Airtel, TCS, Reliance Industries, and HDFC Ltd. are next in the list of top holdings with an allocation of about 4% to 5% in each. Many of the stocks in its top 10 holdings have been part of the portfolio for over two years now.
UTI Mastershare Fund benefitted immensely from its substantial holdings in stocks like Infosys, ICICI Bank, Indian Energy Exchange, SKF India, Tech Mahindra, Bharti Airtel, and TCS that have together contributed over 15% to its returns in the last one year. Meanwhile, it lost some value in stocks like Kotak Mahindra Bank, Dr Reddy's Laboratories, Sanofi India, HUL, Maruti Suzuki India, and so on.
In terms of sector holdings, Financial services top the allocation list with a combined allocation of 27.8%. Infotech, Consumption, Pharma, Auto, Engineering, Telecom, and Petroleum products are the other core holdings in the fund's portfolio, having an allocation in the range of 4-17%. The top 10 sectors together account for around 85.8% of its assets. UTI Mastershare Fund's portfolio is fairly diversified across Cyclical and Defensive sectors along with Sensitive sectors.
Suitability
UTI Mastershare Fund is a prudently managed fund that has recorded robust performance in the last couple of years. This feat has been achieved without exposing the portfolio to undue risk. UTI Mastershare Fund holds a portfolio that is fairly diversified at the stock level. Moreover, it has reasonable exposure to cyclical, defensive, as well as sensitive sectors that can enable it to deal with market fluctuations and aid in protection from downside risk.
UTI Mastershare Fund has an experienced fund manager at the helm, Ms Swati Kulkarni, who has been managing the fund for around 15 years now. Under her supervision, the fund has stood strong during tough market conditions even though it may not be among the top performers during bull market phases.
UTI Mastershare Fund is suitable for cautious investors looking for a relatively stable Large-cap fund that can offer decent capital appreciation over the long term.
Warm Regards,
Divya Grover
Research Analyst
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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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