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  • MF News ‘Incremental investments should come from SIP/STP not lump sum’

    ‘Incremental investments should come from SIP/STP not lump sum’

    We caught up with Swati Kulkarni, EVP and Fund Manager, UTI MF who has been managing India’s first market linked diversified equity fund UTI Mastershare Unit. The fund has recently turned 31.
    Nishant Patnaik Oct 17, 2017

    Markets are at an all-time high. What do you think is driving the rally? What could derail it?

    Adequate liquidity is driving the market rally currently. One is of course the financialization of savings post demonetisation. In addition, bank FDs are no longer attractive for investors due to their unattractive returns. These investors are looking at other avenues to get attractive returns such as mutual funds.

    Another healthy sign for the market is that the money is coming from retail investors through SIP. Many retail investors stay put for long term despite volatility in the markets.

    However, markets could derail if earnings remain sluggish. Currently, it is in the single digit.

    We have been hearing from fund managers that corporate earnings are round the corner for the last three years. Why has it not revived so far? When do you expect revival in corporate earnings?

    Firstly, many investors look at the leading indices to measure earnings growth, which may not give you a true picture. In FY 2015-16, global commodities had pulled down the overall earnings growth. Similarly, banks, which have 30% weightage on leading indices, reported losses in FY 2016-17.

    Therefore, the earnings growth has been sluggish due to a few sectors having reasonably high weightage in overall indices. However, there are certain pockets such as automobile and consumer discretionary that have been posting double-digit growth. Another sector that will do well is retail private sector bank due to a revival in demand.

    Also, factors like demand picking up in rural economy and increase in government spending across defence and roads will boost earnings growth. Overall, FY19 looks good for corporate earnings growth. Many experts say that the market is overvalued. What are your thoughts on this?

    Though the market is at higher end of the past historical band, there are pockets in the markets where stocks are available at attractive prices. We believe large cap stocks provide such an opportunity.

    There is some research to indicate that women follow a more stable fund management style and avoid very risky bets. What do you have to say about it?

    I cannot speak on global practices but the funds which I manage has to pass through checklists such as attractive valuation, entry barrier to others, competitive advantage, reasonable returns on capital employed and sustainable cash flow . Our turnover ratio is low.

    Ideally, when it comes to managing other’s people money, we should not take too much risk.

    In the process, these hygiene factors reduce the risk.

    In India, we have 20 woman fund managers of which 85% manage fixed income funds. Why are woman fund managers not more active in the equity space?

    It is not between the fixed income fund managers and equity fund managers. The reality is that industry has a few women fund managers. In my view, the  fund management job is a bit difficult for a woman, as she has to keep herself updated of national and international events. She needs to spend time on reading to increase her knowledge.

    Currently a few women fund managers are managing large funds. However, it is just a matter of time.

    When I look back, I remember the male dominated team of equity analysts. However, things have changed and I have many women colleagues helping me in my fund management team. Even when we go for analysts meet, we see many women representations today.

    What needs to be done to attract more woman fund managers in India?

    Finance should be a part of school curriculum. Currently, students become familiar with financial subjects once they reach college. Just like mathematics, finance should be compulsory for school students.

    You have been managing India’s first market linked equity fund UTI Mastershare Unit Scheme for 11 years. How difficult is to maintain the track record of such a historical fund?

    We have been maintaining style purity i.e. 80% large cap stocks since the last 11 years. This has helped us deliver attractive risk adjusted returns to investors.

    In addition, we have a track record of declaring annual dividends. We largely invest in companies having positive cash flows. This helps us pay regular dividends.

    Over the years, UTI Mastershare Unit alpha generation has become strong. In fact, we have done research to measure the performance of this fund during bear phase. We found that the fund managed to generate positive alpha even when the markets fell. This is due to stock selection. We have also avoided risky bets.

    Though the fund has not appeared on the top decile frequently, it is a consistent performer.

    After you started managing this scheme, you have substantially reduced the number of stocks to 35 -40 stocks from over 80 stocks. On an average, other fund managers have been holding over 50 stocks in diversified portfolio. Why do you think that 30-35 stocks are enough for a diversified portfolio?

    Studies have shown, though, incremental risk reduction is immaterial beyond 35-40 stocks. There is no point in holding too many stocks if the purpose is risk reduction.

    In addition, an investor should know that every fund manager has a bandwidth. It is difficult to track too many stocks.

    Talking about the fund, what are the sectors that you are overweight and underweight on?

    Currently, we are overweight on automobile, industrial manufacturing and retail private sector banks considering the increasing government spending. We are underweight on metal.

    Which category of equity funds would you recommend investors to invest in now?

    Distributors should look at valuation gap between large cap funds and mid & small cap funds. We have seen mid-cap rally. In fact, market capitalization of mid-cap has gone up to five times.

    Now, only large cap stocks look attractive.

    However, incremental investment should come from SIP and STP and not through lump sum.

    How do you to maintain balance between your personal and professional life?

    In my view, if you like a particular job, you feel fresh at work. It is applicable in any profession. Even if you have too much work to do, you will be energetic throughout the day.

    Another factor, which keeps me going, is the organisational set up at UTI MF. We have the best team of analysts, a clearly defined fund management process and flexibility to work.

     

     

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

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