Swati Kulkarni EVP & Fund Manager – Equities, UTI Mutual Fund helms UTI Mastershare which is the oldest equity fund in India with a consistent dividend paying track record of 25 years. In a telephonic interview, she talked to Cafemutual about the fund’s progress, her views on markets and more.
UTI Mastershare has a track record of regular dividend
payouts. How has this been sustained? Do dividends help a scheme to attract new
investors?
Though there is no
guarantee of dividends, we have been endeavoring to keep rewarding our
investors. So, to adhere to this principle, we keep booking profits regularly. In
India, people look for returns on their investments and so far not many people are
aware about the NAV appreciation. So we try to satisfy investor’s needs by an
annual payout. Most investors in this scheme have opted for dividend option.
What is the fund’s strategy?
It’s a large cap
focused fund with a growth style. We have clearly outlined the fund’s
positioning in the last five years. We take a more top-down approach in this
fund. We don’t drastically move away from the benchmark and at the same time take
active calls on benchmarks, sectors and stocks. We have 20% allocation to mid
and small cap stocks. These stocks could be outside the benchmark also. We have
set sector limit at 25% and per stock limit at 7.50%. These
are not offer document limits but we do it to stay true to the positioning of
the fund. You could classify it as a conservative fund because of the
restrictions. The fund’s volatility is
lower than the index.
You started managing UTI Mastershare since November 2006.
What changes did you adopt to turn around the fund? Have you adopted any
changes in your fund management approach over the years?
The fund was in line
with our thought process. So when Anoop Bhaskar came on board as Head -
Equities, we decided that we’ll position all our funds in different baskets. We
decided to put Mastershare in the large cap category. We improved the large cap
allocation. Infrastructure stocks didn’t have much cash flows. So we replaced some of these stocks with ones
with blue chip companies like L&T. As
a result, we did reasonably well even when the markets fell.
Can you share with us the investment process at UTI?
We have a lot of emphasize
on in-house research. We have a team of experienced analysts. They along with
our fund managers track about 320 companies which is our universe. We have five
broad categories through which we select stocks for our various funds. So we
filter stocks based on the schemes objective. For instance in Mastershare, we
look for large cap stocks. So the list would come down to around 120 stocks. The
portfolio is constructed based on the style, theme and sector.
Apart from dividend paying track record, what other
factors do you look at before entering or exiting stocks in your UTI Dividend
Yield Fund?
When the fund was launched in 2005, investing in dividend paying stocks was not a very popular concept. The concept caught up later as the market conditions underwent a change. There were some value funds. We also had a Master Value Fund which had this criterion to choose value stocks based on dividend payout. This fund stood out well during volatility which helped it create a niche for itself. So dividend is one of the important factors while choosing a stock. We particularly look at Nifty dividend which is a relative benchmark. This is only a mathematical filter used to filter stocks.
I have always looked
at India as a growth market. We can’t only stick to value. We also look at the
capital appreciation potential stocks which are available at fair price with
robust balance sheets. We further delve
deep into book value, cash flows, competitive advantage and the management of a
company while picking stocks than just mathematically looking at dividend
payout history. So we didn’t invest in certain companies which were paying
double digit dividends which did not have scalability.
We have seen that the portfolio turnover of UTI Dividend
Yield Fund has gone up in the last few months. It reached 60.35% in September 2012. Was there any juggling of stocks?
We started shifting
out of rate insensitive sectors to rate sensitive sectors because of a rate cut
expectation from RBI. We had 15%
weightage towards banks which is up to 27% now. I was neutral on IT and now I’m
underweight. Now I’m neutral on banks. The fund gets regular inflows and
outflows. So, that make us trade to create liquidity which in turn would
increase the turnover ratio of the fund. So whenever we have to pay dividend we
have to keep booking profits. Presence of arbitrage opportunities also add to
the churn.
What are the some of the factors that you are keenly watching out for domestically and overseas?
Domestically inflation and fiscal deficit are the two most important factors that we are closely watching. If macro factors are addressed then global factors could be supportive for earnings growth in India. Because of the laxity in decision making, investment environment has become an issue for some time now. I don’t think interest rate is the only point to kick start the investment cycle. The business environment has to improve. Clearly, growth has slowed down. RBI might emphasize on growth once they get a comfort on the fiscal side.
On the global front,
China and Europe are areas of concern. Now that the US elections are behind us,
we expect that things could continue to move as before. The risk of disruption
due to leadership change is not there now. If the recent numbers of economic
revival continue then it shouldn’t be a problem. From a portfolio perspective I
would be cautious on exporters and on the metals side because 30% to 40% of the
global demand for metals comes from China.
The industry has been facing redemptions from equity
funds ever since the markets have taken off. What would be your advice to
investors?
Investors typically
tend to follow equity investments more rigorously than bank fixed deposits
which get impacted due to inflation. They invest whenever they have money and
that’s why it’s called ‘investment’ and not ‘saving’. Some of them look for
gratification by booking profits. I have seen that when markets come down
people don’t invest, which affects their allocation. So, I would suggest
investors to do asset investment allocation than comparing equity to debt
because both asset classes have different propositions.
One book which you would recommend to all investment
professionals.
My all-time favorite
book is ‘In Search of Excellence’. It’s a management book. It gives you good insights
on evaluating different businesses.
If not fund manager, you would have been...
I chose to come to finance. If not a fund manager, I would have been probably in the area of medicine. I was interested in sports.
