NFO Review - Union KBC Equity Fund
May 25, 2011

Author: PersonalFN Content & Research Team

Union KBC Equity Fund

An open-ended Equity Scheme having freedom to invest across sectors.

Summary

Type	Open-ended Equity Scheme	Benchmark Index	BSE 100
Min. Investment /Add. Investment	5,000 (for lump sum) and 1,000 (for monthly SIP) / 1,000	Face Value	10 per unit
Entry Load	Nil	Exit Load *	1%
Issue Opens	May 20, 2011	Issue Closes	June 03, 2011

* An exit load of 1.0% will be charged if redeemed or switched out on or before completion of 1 year from the date of allotment of units.

Investment Objective*

The investment objective of the scheme is to achieve long-term capital appreciation by investing substantially in a portfolio consisting of equity and equity related securities. However there can be no assurance that the investment objective of the scheme will be achieved.

*Source: Scheme Information Document

Is this fund for you?

Union KBC Equity fund (UKEF) is the first diversified equity fund, from the stable of Union KBC Mutual Fund, being linked to BSE-100 index as its benchmark. Being a diversified equity fund, UKEF has the freedom of investing across sectors, thus providing you the benefit of diversification. While discovering stocks for its portfolio UKEF will consider macro-economic factors and follow a combination of both top-down as well as bottom-up approach of investing. The top-down approach shall involve analysis of macro-economic factors, industry evaluation, benchmark industry allocation, market outlook amongst others and shall be used to determine the asset allocation including cash levels and / or the target sector allocation. The bottom-up approach on the other hand will help UKEF scan market opportunities and shall help it evaluate individual companies on their merits by taking into account both quantitative as well as qualitative parameters.

Moreover before assigning weights to the stocks in the portfolio, the investment team shall also take into account following factors thus adopting a prudent and holistic approach:

Suitability of the stock for the portfolio
Risk characteristics of the stock
Trading volumes of the stock
Free float
Market capitalisation
Growth prospects

As far as the fund house is concerned, it is setup as a joint venture between, between two large organisations namely, Union Bank of India and KBC Asset Management NV of Belgium; wherein Union Bank of India holds a 51% stake in the venture while the remaining 49% is held by KBC Asset Management NV through its 100% subsidiary KBC Participations Renta.

Portfolio & Investment Strategy

UKEF will follow a blend style of investing (while selecting stocks across market capitalisations and sectors), by using a combination of both top-down as well as bottom-up approach of investing. The fund will build a diversified equity portfolio, by identifying stocks by assessing the following quantitative and qualitative factors:

Qualitative Factors

Financial Strength of the company
Sales growth of company
Profit margins enjoyed by the company
Return on capital employed of the company
Valuations

Quantitative Factors

Business of the company and brief history
Management and promoters
Product profile
Customer / market for the products
Business risk
Market factors

Moreover, while building the portfolio on the aforementioned parameters, UKEF will also not rule out market related factors such as average daily volumes, market capitalisations, shareholding pattern, full market capitalisation and free-float market capitalisations among others.

The fund is mandated to allocate its assets as under:

Instruments	Allocation Range (% to Total Assets)		Risk Profile High/Medium/Low
Instruments	Minimum	Maximum	Risk Profile High/Medium/Low
Equity and equity related instruments including equity linked derivatives#	75	100	Medium to High
Debt and money market securities	0	25	Low to Medium

# restricted upto 25% of the net assets of the scheme.
(Source: Scheme Information Document)

However as an investment process the asset allocation would be maintained based on the macro-economic outlook (backed by macro-economic research). Similarly while maintaining its sector allocation too macro-economic factors will be evaluated along with attractiveness of respective sectors and their composition of various sectors within the benchmark.

Fund Manager Profile

Mr. Ashish Ranawade, (41 years of age) is the Chief Investment Officer (CIO) at Union KBC Asset Management Company Private Limited and has to his credit a Bachelors Degree in Electronics Engineering (B.E. - Electronics) and a Masters degree in Management Studies with specialisation in Finance (MMS – Finance).

Moreover he holds over 16 years of experience in the field on investment management. Prior to joining in Union KBC mutual fund in July 2010, he has had the opportunity to work with UTI Asset Management Company Limited as the Head of PMS (Portfolio Management Services) from April 2006 to July 2010. Prior to that, he had a same role to perform with ING Investment Management (India) Limited.

Fund Outlook

The launch of the fund has come well at time when the Indian equity markets have already corrected (on the downside) by good -14.2% from their last peak (of 21,004.96 points made by the BSE Sensex on November 5, 2010) and the bears are tightening their grip. It gives the fund manager the opportunity to undertake value buying, at these reasonable valuations of the equity markets. But, given that the global markets are feeling the shivers of situation of debt-overhang faced by the Euro zone, UKEF in the intermediate may see high portfolio churning in the intermediate as the fund manager may book some profits at every impulsive bull rallies shown by the Indian equity markets. Moreover, this may be evident in the long-term too as UKEF pursues to create wealth for its investors.

Remember, the frequent churning in the portfolio results in higher brokerage cost, which makes the expense ratio heavy.

In the absence of a distinct market cap bias to be followed, UKEF is likely to follow a multi-cap style while investing, thus linking its fortune to various market cap segments of the equity markets.

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