Invest in attractive looking sectors and exit sectors with negative fundamentals
The focus of this scheme is to capitalize on opportunities arising in the market by responding to the dynamically changing Indian economy. It achieves this by moving its investments amongst different sectors as prevailing trends change. Launched five years ago, the fund may also take concentrated bets in stocks facing special situations such as mergers, splits, turnaround and new product launch.
The fund got off to a weak start with a meagre 11 per cent return in 2006, under performing the category and benchmark. This was because of betting wrongly on mid-caps in a year when the large-cap stocks rallied. To add to the woes, the high sector allocation in Auto proved to be a bad call. Things started to change in 2007, especially after Harsha Upadhyaya joined in March that year. Not only has the fund made up on lost ground; over the past three years it has emerged to be amongst the top 5 performers in the category.
"We hold on to a sector until we see a huge valuation gap between that sector and the market," explains Harsha Upadhyaya, Vice President and Fund Manager, UTI AMC on how the dynamic call works. "There has to be some fundamental development which is negative in the sector leading to a sell-off. Alternatively, it could just be that there is another sector that looks more attractive," he clarifies further. For instance, in 2009, he moved out of FMCG into IT and got on early into the Metals cycle. Further, he continued with Hero Honda and his bets on Tata Motors, ICICI Bank, Hindalco and Lanco Infratech have all favourably worked for the fund.
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Upadhyaya mostly attempts to keep 65-75 per cent of his portfolio in 4 to 5 select sectors which he believes will outperform the broader market in the short- to medium-term. Though the fund has no market-cap bias, he sticks to a 70:30 large- to mid-cap allocation. This along with a diversified portfolio helps the fund partly mitigate risks. The fair amount of cash holdings is due to the derivative exposure that Upadhyaya employs to hedge.
