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Fund Analysis: UTI Mid Cap: Fine but needs to be more consistent
Mon, Aug 27, 2012
Source : Sanjay Kumar Singh, Citrus Interactive

UTI Mid-Cap is a mid-cap growth fund that was started in April 2004. Currently the fund has Rs. 285.32 crore under management.

Fund performance

Year-to-date (July 31) the fund has given a return of 19.17 per cent. It is currently ahead of its benchmark, the CNX Midcap Index, by 1.88 percentage points. The fund has also beaten its benchmark over the one-, three-, and five-year horizons. Since inception the fund has given a compounded annual return of 17.21 per cent.

 

Scheme name

 

YTD

 

1-yr

 

3-yr

 

5-yr

 

Since inception

 

UTI Mid Cap(G)

 

19.17

 

-6.81

 

12.82

 

5.37

 

17.21

 

CNX Midcap

 

17.29

 

-10.59

 

6.40

 

3.02

 

--

 

All figures in %

 

Next, let us turn to calendar year wise performance to see if the fund has been consistent. The fund doesn't quite measure up on this count: in three of the last five calendar years it has lagged behind its benchmark (though in one year the margin of underperformance was only 22 basis points). But in 2007, when the equity markets rose steeply and the CNX Mid-cap Index rose 76.93 per cent, the fund fell behind by a considerable margin of 24.13 percentage points.

 

Scheme name

 

2011

 

2010

 

2009

 

2008

 

2007

 

UTI Mid Cap(G)

 

-24.70

 

18.94

 

106.98

 

-61.66

 

52.80

 

CNX Midcap

 

-31.47

 

19.16

 

94.85

 

-60.23

 

76.93

 

Out/under-performance

 

6.77

 

-0.22

 

12.12

 

-1.43

 

-24.13

 

All figures in %

 

Has the fund been able to provide downside protection in declining markets? On this count its track record in recent times has been 50:50. It was able to beat its benchmark in 2011 but lagged behind in 2008.

Portfolio characteristics

Number of equity holdings. Currently this fund has 70 stocks in its portfolio. This is a far higher number than the median for the diversified equity category, which currently stands at 41. Thus this is among the more diversified funds within this category.

Even in the past the fund has always had a diversified portfolio. The average number of stocks in its portfolio over the last five years stands at 65.78.

Sector concentration. The fund's concentration in the top three, five, and 10 sectors in its portfolio is lower than the median for the diversified equity category.

 

Top 3

 

Top 5

 

Top 10

 

UTI Mid Cap(G)

 

25.59

 

35.59

 

50.58

 

Median

 

33.43

 

46.42

 

67.46

 

All figures in %

Company concentration. The fund's concentration in the top three, five, and 10 stocks in its portfolio is also much lower than the median for the diversified-equity category.

 

Top 3

 

Top 5

 

Top 10

 

UTI Mid Cap(G)

 

13.07

 

18.54

 

29.93

 

Median

 

19.04

 

28.56

 

46.24

 

All figures in %

Thus an examination of the number of equity holdings, sector concentration and company concentration leads to the conclusion that this is a highly diversified fund.

Turnover ratio. According to the fund's latest disclosure, it had a turnover ratio of only 31.04 per cent in July. This was much lower than the median for the diversified-equity category, which currently stands at 72.50 per cent.

Even historically the fund has had a low turnover ratio. We have data available since April 2008. Over this period the fund's average turnover ratio has been 51.52 per cent.

Expense ratio. Currently the fund has an expense ratio of 1.58 per cent. This is much lower than the median of 2.34 per cent for the diversified-equity category. This is a positive for investors.

Cash calls. Over the last five years fund's average allocation to cash has been 7.69 per cent. Its maximum cash allocation has gone as high as 33.50 per cent in February 2009. This was in the aftermath of the global financial crisis when risks had got magnified.

In recent times, however, the fund has stuck to a policy of low allocation to cash. The last time its cash allocation was in the double digits was May 2009, when it stood at 12.64 per cent.

While a high allocation to cash can stem a fund's decline in a falling market, the danger is that it could be left on the sidelines when the markets move up suddenly.

Risk measures. On risk measures the fund's figures fluctuate around the median for the diversified-equity category. While the standard deviation over a three-year span is marginally higher, the beta is marginally lower.

 

Standard deviation

 

Beta

 

UTI Mid Cap(G)

 

1.0274

 

0.7144

 

Median-diversified equity

 

1.0235

 

0.8039

 

Risk-adjusted returns. On measures of risk-adjusted returns such as Treynor ratio and Sharpe ratio, the fund fares better than the median for the diversified-equity category.

 

Treynor

 

Sharpe

 

UTI Mid Cap(G)

 

0.0547

 

0.0380

 

Median-diversified equity

 

0.0263

 

0.0204

 

Fund performance

2011. In 2011 the stock markets declined: the Sensex fell -24.83 per cent, the BSE Mid-cap Index fell -34.78 per cent, and the BSE Small-cap Index fell -43.63 per cent. That year the fund's benchmark, the CNX Mid-cap Index fell -31.47 per cent. The fund did well to restrict its decline -24.70 per cent.

In 2011 the fund had an average allocation of 28.79 per cent to mid-cap stocks. Its allocation to small-cap stocks averaged 29.36 per cent. Its allocation to large-cap stocks stood at 34.50 per cent during the year.

The fund began the year with a 4.16 per cent allocation to cash. With the markets declining, this rose to 7.26 per cent by the end of the year. Cash allocation averaged 4.75 per cent during the year.

In 2011 only the BSE FMCG index turned in a positive performance (9.27 per cent). All the other sectors gave negative returns: BSE Healthcare (-13.20 per cent), BSE IT (-15.62 per cent), BSE Teck (-16.52 per cent), BSE Consumer Durables (-18.13 per cent) and BSE Auto (-20.30 per cent).

Fund’s sector allocation-2011

Industry

 

March 2011

 

December 2011

 

Pharmaceuticals & Drugs

 

12.05

 

14.51

 

Bank – Private

 

3.69

 

3.94

 

Bank – Public

 

7.14

 

6.57

 

Automobiles-Trucks/LCV

 

6.76

 

5.47

 

Pesticides & Agrochemicals

 

4.78

 

4.40

 

Auto Ancillary

 

5.60

 

2.33

 

All figures in %

At the beginning of the year the fund’s highest allocation was to the Pharma sector. It remains so till the end of the year. In fact, allocation to this sector was raised even higher by December. The fund's second-highest allocation was to public-sector banks. Allocation to this sector was scaled down marginally by December. Allocation to commercial vehicles and auto ancillary was also reduced by the end of the year, the latter by almost half.  

Among the larger holdings, the other sector (besides pharma) to which allocation was raised was private banks.

 Fund versus benchmark: December 2011

Sector name

 

Fund

 

CNX Mid-cap

 

Over/underweight

 

Pharmaceuticals & Drugs

 

14.51

 

10.31

 

4.2

 

Bank – Public

 

6.57

 

8.11

 

-1.54

 

Automobiles-Trucks/LCV

 

5.47

 

1.1

 

4.37

 

Pesticides & Agrochemicals

 

4.4

 

1.46

 

2.94

 

Bank - Private

 

3.94

 

3.53

 

0.41

 

Cement & Construction Materials

 

3.8

 

3.64

 

0.16

 

IT - Software

 

3.28

 

3.94

 

-0.66

 

All figures in %

 

By December 2011 the fund was overweight compared to its index on pharma, automobiles, pesticides and agrochemicals, and marginally on private banks and cement and construction materials.

Among its larger holdings the fund was underweight compared to its index on public-sector banks and IT software.

2012. So far this year (July 31) the Sensex is up 11.53 per cent, the BSE Mid cap Index is up 17.08 per cent, and the BSE Small-cap Index is up 16.18 per cent. Year-to-date (July 31) the fund is up 19.17 per cent while its benchmark is up 17.29 per cent. Thus, so far this year the fund is ahead of its benchmark by 1.88 percentage points.

In 2012 the fund has had an average allocation of 29.1 per cent to mid-cap stocks and 29.65 per cent to small-cap stocks. Its average allocation to large-cap stocks has gone up compared to last year and currently stands at 36.88 per cent.

The year began with a cash allocation of 5.55 per cent, which had been reduced to 2.93 per cent by July. Cash allocation has averaged 3.54 per cent so far this year.

Year-to-date (July 31) the top-performing sectors have been BSE Bankex (30.12 per cent), FMCG (25.03 per cent), Healthcare (21.65 cent), Consumer Durables (19.16 per cent), Realty (19.04 per cent) and Capital Goods (19 per cent).

Sector allocation

Industry

 

Mar-12

 

Jun-12

 

Pharmaceuticals & Drugs

 

13.06

 

13.59

 

Bank - Private

 

4.71

 

5.02

 

Cement & Construction Materials

 

4.45

 

4.77

 

Bank - Public

 

6.36

 

6.14

 

Automobiles-Trucks/LCV

 

6.22

 

5.81

 

Pesticides & Agrochemicals

 

3.61

 

3.4

 

All figures in %

Even this year the fund's top allocation is to the Pharma sector to which it has marginally increased its allocation between March and June. Among its other top allocations, the fund has raised its exposure to private banks and cement and construction materials. It has marginally reduced its exposure to public-sector banks, commercial vehicles, and pesticides and agrochemicals.

Fund versus index

Sector name

 

Fund

 

CNX Midcap

 

Over/underweight

 

Pharmaceuticals &

Drugs

 

14.39

 

10.31

 

4.08

 

Auto (trucks/LCV)

5.76

 

1.1

 

4.66

 

Bank – Public

 

5.44

 

8.11

 

-2.67

 

Cement & Construction Materials

 

5.12

 

3.64

 

1.48

 

Bank – Private

 

4.88

 

3.53

 

1.35

 

Plastic Products

 

3.46

 

1.24

 

2.22

 

IT - Software

 

3.24

 

3.94

 

-0.7

 

Consumer Food

 

2.84

 

4.68

 

-1.84

 

Auto Ancillary

 

2.75

 

3.47

 

-0.72

 

Among its top holdings, the fund is currently overweight compared to its index on Pharma, commercial vehicles, cement and construction materials and private banks. It is underweight compared to its benchmark on public-sector banks, IT software, consumer food, and the auto ancillary.

Fund manager

Anoop Bhaskar, who is Head of Equities at UTI AMC, has been managing this fund since April 2007. Some of the other diversified funds that he manages include UTI Opportunities (a large-cap fund which has an outstanding track record), UTI Equity (a large-cap fund which has a good track record), and UTI Master Value (a mid- and small-cap fund which has a good track record).

The fund has many positives: it is diversified, has a low turnover, a low expense ratio, and does not take high cash calls. An investor investing in this fund at inception would have earned a compounded annual return of 17.32 per cent, which is attractive. Our only quibble with the fund is that it has not been consistent in the past five calendar years. 

You may contact the author at sanjay.singh@citrusadvisors.com
 
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