Financial experts often recommend that investors should invest in funds that capture the near complete spectrum of the markets, in other words well diversified funds. One tends to gravitate towards large cap funds since they optically cover anywhere from ~80-85% of the market capitalization. Although large caps do represent the broader markets/indices, investors should recognize that these funds do not always reflect or capture the opportunities across the spectrum. This spectrum could include opportunities in different market capitalizations, different investment approaches (growth vs. value) or even the cyclicality in certain segments of the overall markets. This anomaly or rather varied market dynamics gives the fund manager/s the broad field for unique opportunities across the market capitalization spectrum and investment styles at the same time ensure that the relative portfolio risk is reduced.
UTI Value Opportunities Fund is one of such funds that looks for opportunities which is expressed in terms of relative intrinsic value of a given stock, which means following “Value” style of investment and across the market capitalization spectrum, what we call Multi-cap Fund. Where “Value” is buying things for less than their intrinsic value. Intrinsic value is simply the current value of the cash flows that the company generates for its shareholders over a period of time. Undervalued businesses can be found at two ends of the spectrum. At one end the market may under appreciate the sustainability of competitive advantages and/or the length of the growth runway for the company. These companies defy the norm of cyclicality and reversion to mean. At the other end of the spectrum there are companies that may be experiencing challenges due to cyclical factors, changes in the environment or their own past actions. But if the core business is healthy and a path to a better future (cash flows, return ratios) is visible then their depressed valuations offer an attractive entry point. The opportunity in both cases is to buy something cheap relative to expectations. UTI Value Opportunities Fund would be focusing on companies having a high intrinsic value and the ability to generate cash flows over time.
UTI Value Opportunities Fund was launched in the year 2005. The Fund has AUM of Rs. 4,181 Crores with over 4.87 lakhs of unit holder accounts as of August 31, 2019. The Fund has a flexibility to position itself more actively across the market cap spectrum. While the portfolio will have a large cap bias; the midcap exposure could vary more widely based on valuation differentials. The Fund has about 74% invested into Large Caps and remaining in Mid & Small caps as on August 31, 2019. The scheme’s top holding consists of HDFC Bank, ICICI Bank, Infosys, Axis Bank, Tata Consultancy Services, ITC, Sun Pharma, Indus Ind Bank, Bharti Airtel, and Cipla which accounts for 50% of the portfolio’s holdings.
UTI Value Opportunities Fund is suitable for those equity investors looking to build their “core” equity portfolio and seeking long term capital growth. Also suitable for investors with moderate risk-profile, looking for reasonable outperformance over plain vanilla equity funds over medium to long term.