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 fund 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. 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 was launched in the year 2005. The Fund has AUM of over Rs. 6,500 Crores with over 4.50 lakh unit holder accounts as of August 31, 2021. While the portfolio will have a large cap bias; the midcap exposure could vary more widely based on valuation differentials. The Fund has about 70% invested into Large Caps and remaining in Mid & Small caps as on August 31, 2021. The scheme’s top holding consists of Infosys Ltd., ICICI Bank Ltd., HDFC Bank Ltd., Axis Bank Ltd., Bharti Airtel Ltd., State Bank of India Ltd., Tech Mahindra Ltd., ITC Ltd., Jubilant Foodworks Ltd., and Eicher Motors Ltd. which accounts for 48% of the portfolio’s holdings.
UTI Value Opportunities Fund may be suitable for those equity investors looking to build their equity portfolio and seek long-term capital growth. Also suitable for investors with moderate risk-profile, looking for reasonable returns over medium to long term subject to market conditions.