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While UMP's investment rationale for investing predominantly in large caps is sound, from the investor's perspective this is not good enough. What he wants to see is whether the fund has delivered results on expected lines. Being a large cap fund, he expects UMT to deliver a competitive performance on the risk parameters. So, does UMT deliver the goods? Let’s find out.
How UMP fares vis-à-vis peers
| |
NAV
(Rs) |
1-Yr
(%) |
3-Yr
(%) |
5-Yr
(%) |
Since
Incep.
(%) |
Std.
Dev.
(%) |
Sharpe
Ratio
(%) |
| Kotak 30 (D) |
30.89 |
17.3 |
36.6 |
45.4 |
29.4 |
7.84 |
0.24 |
| HDFC Top 200 (G) |
131.98 |
13.6 |
33.6 |
44.0 |
31.1 |
6.97 |
0.25 |
| ICICI Pru. Growth (G) |
102.42 |
6.2 |
30.3 |
37.5 |
26.2 |
7.19 |
0.19 |
| Reliance Vision (G) |
203.26 |
3.6 |
30.0 |
44.3 |
26.8 |
7.87 |
0.22 |
| UTI Master Plus (D) |
52.83 |
1.1 |
27.7 |
35.5 |
15.0 |
7.95 |
0.18 |
| BSE Sensex |
|
9.8 |
31.9 |
36.1 |
|
|
|
Source: Credence Analytics. NAV data as on June 6, 2008.)
(Standard Deviation highlights the element of risk associated with the fund. Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument)
Over 3-Yr, UMP (27.7% CAGR) languishes at the bottom of the rung. Its showing over 5-Yr (35.5% CAGR) is just as dismal. Kotak 30 and HDFC Top 200 emerge as the better funds over both these time frames. UMP's performance over 1-Yr, which admittedly is not the right time frame for evaluating an equity fund, is forgettable (1.1%).
UMP has underperformed its benchmark index (BSE Sensex) over 1-Yr, 3-Yr and 5-Yr. It is surprising that the fund has selected BSE Sensex as its benchmark index despite targeting companies from the BSE 100.
Volatility
As we have highlighted earlier, large cap funds are expected to show lower volatility. But UMP does not reveal this trait. On the contrary, it shows above-average volatility (Standard Deviation 7.95%) vis-à-vis peers. Standard Deviation underlines the risk the fund has exposed investors to; a higher Standard Deviation means higher volatility and vice versa. HDFC Top 200 (6.97%) proves to be the least volatile fund.
Risk-adjusted return
The risk-adjusted return parameter underlines the returns generated by the fund per unit of risk borne. With a Sharpe Ratio of 0.18%, UMP scores poorly on this front as well. Once again, HDFC Top 200 (Sharpe Ratio 0.25%) proves to be ahead of the competition by delivering a superior risk-adjusted return.
As can be seen in the graph, Rs 100 invested in UMP on inception (December 1991) would have grown to approximately Rs 1,458 by June 6, 2008, while the same amount invested in the benchmark index i.e. BSE Sensex would have been worth around Rs 1,110.
In a nutshell
While UMP may boast of a 17-Yr old track record, from the investor's point of view, this holds limited significance given its listless performance. A long-term track record that is established across risk and return parameters, over market cycles (upturn and downturn) is what counts in the investor's books. Clearly, UMP has some way to go before it can achieve such a standing.
What should investors do?
The question that remains unanswered is should investors consider investing in the fund? That would ideally depend on their risk appetite, investment objectives and existing portfolios, among a host of other factors. At Personalfn, we have always maintained that a one size fits all approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Therefore, investors would do well to consult their investment advisors/financial planners to determine the suitability of UMP in their portfolios.