UTI Leadership Equity's extremely conservative play has led the fund to miss out on some of the brilliant opportunities
UTI Leadership Equity Fund was launched in January 2006 with an objective to invest in companies, which are perceived as leaders in their respective sectors. This, however, does not render UTI Leadership Equity as an exceptional fund as its portfolio is akin to any other multi-cap diversified equity scheme with a clear bias for large-cap companies.
PERFORMANCE:
With most of the Sensex and the Nifty stocks forming part of its portfolio and the sectoral weightage also similar to that of the Sensex and the Nifty, the performance of UTI Leadership Equity can be more or less aligned to the performances of these two indices. In 2007, for instance, even as the category of diversified equity delivered an average of about 60% returns, UTI Leadership Equity was content with about 53% returns, akin to that of its benchmark index — the S&P CNX Nifty which returned about 55% in that year. The sensex returns were placed at about 47% then. In the meltdown year of 2008, the fund's net asset value declined by about 54% against the 52% decline in the major market indices. The category of diversified equity schemes fell by an average of about 57% in that year.
For further disappointment of its investors, the fund did not show any improvement in its performance even in the following years, despite the market making a sharp recovery. In 2009, for instance, it returned about 69% for the year against the Nifty returns of about 76% while the Sensex returned about 81% in that year. Then again, in the current calendar year, it has so far managed to generate just about 1% gains against the Nifty gains of over 2%.
To summarise the fund's performance till date, since its launch in 2006, it has returned just about 46% absolute gains to its investors against about 72-73% gains by the Sensex and the Nifty, respectively during this period, rendering this fund as a below average performer so far.
PORTFOLIO:
With its objective to invest in sector leaders, UTI Leadership Equity's portfolio clearly comprises of the blue-chip Nifty stocks. Moreover, its sectoral build-up is also pretty similar to that of the Sensex and the Nifty. This can be construed as one of the reasons for the fund's poor performance, especially in the current calendar year where these two major indices of the country have been extremely volatile, thanks to their restricted sectoral composition. UTI Leadership Equity is thus devoid of any major exposure in the healthcare sector — one of the most prosperous sectors for over a year now— while it has a high exposure in sectors like metals which have been highly volatile since the beginning of this year.
As far as stock holdings are concerned, most of its blue-chip holdings date back to the time of its launch in early 2006. The dedicated long-term investment strategy in these stocks has definitely boosted the fund's notional gains. Some of these stocks where the fund can be said to have made massive profits include SBI, BHEL, L&T, RIL and Infosys. At the same time, some of its other long-term holdings have been severely impacted by the market volatility and are currently trading below their investment costs. These include Jaiprakash Associates, Sterlite Industries, SAIL, Tata Steel and Alok Industries.
While the fund does churn its portfolio occasionally, a major chunk of its current portfolio is more than two years old clearly hinting at fund's philosophy for long term investments rather than a trading tendency. Nearly four-fifth of the fund's current equity portfolio is believed to be trading at a price above the cost of investment. However, some prominent companies from sectors like pharma and consumer goods are clearly missed in the portfolio.
OUR VIEW:
UTI Leadership Equity, given its current portfolio structure and investment strategy, can be said to be a highly conservative equity scheme. This extremely conservative approach has, however, led the fund to miss out on some of the brilliant opportunities in the market. The mutual fund industry has many other conservative equity diversified schemes on offer, some from the UTI basket itself that have historically generated much better returns than Leadership Equity.
