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UTI Wealth Builder II

DIVERSIFICATION is the key to mitigate the risk in any investment portfolio and investors hard learned this lesson during the global financial meltdown of 2008. UTI launched its Wealth Builder II Scheme in November 2008 with an objective to diversify the portfolio to two of the most popular asset classes — equity and gold. Branching out the portfolio among these two assets classes definitely made sense since equity and gold are known to have an extremely inverse relationship, i.e., when equity goes up, gold comes down and vice versa.


   But has this experiment delivered on the promise of providing a superior risk adjusted return? Here is a sneak preview.

PERFORMANCE

UTI Wealth Builder II is a relatively new fund and thus does not have a strong track record to back its performance. As the fund was launched towards the end of the meltdown cycle, when most of the equity stocks were available at extremely cheap valuations, it definitely got an edge over many of its peers to accumulate some of the good picks at discounted valuations.


   The fund thus started its innings on a positive note, outperforming its benchmark BSE 100 by good margins. By December 2008, UTI Wealth Builder had returned 0.2% against BSE 100's - 3.1% returns for the one-month period since its launch in November 2008. It, however, failed to meet the 1.6% returns clocked in by gold during that period.


   In 2009, the dramatic recovery witnessed in the market saw BSE 100 return 85% in that year. UTI Wealth Builder II, however, managed to clock in just about 72% gains. As far as gold prices are concerned, the same zoomed up by more than 24% last year.


   Given UTI's Wealth Builder II's average exposure of about 14% in the units of gold exchange-traded funds (ETFs) last year, the weightage average return of the portfolio turns out to be approximately 73%. The actual returns of about 72% can thus be said to be at par with the anticipated returns.


   In the current calendar year, however, despite gold prices having soared to record highs, the fund has just about 9% of its portfolio invested in gold ETFs. This strategy has adversely affected the fund's performance so far as the equity markets continue to swing violently. Since January this year, the fund has thus returned about -4% against the rise of about 12% in gold prices. Returns of BSE 100, too, have declined by about 3% during this period.

PORTFOLIO

While UTI Wealth Builder II's portfolio is diversified between equity, debt and units of gold ETFs, it is equity that continues to dominate the fund's portfolio quite aggressively. Within the equity space, the fund is clearly inclined towards the large-cap stocks. Currently, about 78% of the fund's equity composition is held in large-cap stocks while its investment in gold ETFs is about 8.3%.


   Some of its prominent large-cap holdings include Hero Honda, HDFC Bank, ICICI Bank, SBI, BHEL, L&T, Gail, Infosys, Cairn, Sterlite Industries, Tata Power and RIL among others that the fund has been holding since the time of its launch. With markets having rallied aggressively since then, UTI Wealth Builder II has made good profits on these stocks.


   The fund has not been an aggressive churner so far and most of its stocks are held for long-term. However, this doesn't hurt as nearly 78% of the fund's current portfolio is in the profit zone. A few of its investments that remain under water include Punj Lloyd and Shree Renuka Sugars. At their current level, both the stocks are much below their level in mid-2009 when the fund first invested in them.


   As far as the sectoral composition is concerned, finance and energy dominate the fund's portfolio while its exposure to healthcare is minuscule. UTI Wealth Builder II has thus clearly missed out on the pharma rally that has been ruling the market for over a year now.

OUR VIEW

One of the unique funds in the category of diversified equity schemes, UTI Wealth Builder's performance was definitely impressive last year. However, this year has not been an impressive one so far as the fund clearly seems to have missed the gold rally. While the existing investors are advised to stay put as the fund may see a turnaround in the coming months given its 'golden' edge, new investors may keep an eye on its performance for some more time before investing in this relatively new but a different kind of mutual fund product.


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