Surviving The Swings - UTI Dividend Yield Fund

The global headwinds are still not showing any sign of stabilising or improving and as such the international markets have been walking on a narrow path since the start of this year. Even now there are concerns hovering over the global recovery front as the recent data from the US raised fears of a ‘double dip’ recovery for its economy. Meanwhile, the debt worries have continued to haunt the European countries even as China has beamed signals of slowing down its heated economy. This makes a perfect curry for a volatile market condition back home despite the encouraging domestic Q1 numbers and the assurance of a normal monsoon. One cannot therefore say that the Indian equities have de-coupled from their global peers.

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In such a situation, investors would obviously hunt for certainty in earnings as in the form of dividend payouts and earnings growth of any company. Therefore stocks with high dividend yields and consistent earnings’ growth history are expected to be the toast of the season. In the past, the dividend yield funds have been a saviour for investors in the falling markets. This is evident from the fact that in CY08 when the diversified funds’ NAV fell by a massive 55.62 per cent, the NAV of all the dividend yield funds slipped by 49.24 per cent on an average. At the same time, this particular fund restricted its fall to 44.44 per cent, the least among all the dividend yield funds.

While the dividend yield funds have been top performers over the longer period, as in the three-year period three out of the top six diversified funds followed a dividend yield investment strategy. In its three and five-year period, the fund has managed to beat its category by 1,131 and 452 basis points respectively. All the top three funds in terms of the Sharpe Ratio (risk adjusted returns) in the diversified funds category are dividend yield funds, and this fund is a part of it with a Sharpe Ratio of 0.55. And to sum it up, this fund has been one of the most consistent in the category over a long-term period.

In June, the fund floated a diversified portfolio of 54 stocks wherein its top ten stocks contributed close to 40 per cent of the total assets. The top three sectors viz. energy, financials and technology contributed up to 52 per cent of the assets. On the market-cap allocation front, over 67 per cent of the portfolio was invested in the large-cap stocks, taking into consideration the swings of the markets. In the past the fund manager has managed to take astute portfolio calls and this had led us to recommend it in our October 2008 issue at Rs 14.49. Today, the value of that investment has more than doubled.[PAGE BREAK]

Swati Kulkarni has been managing this fund almost since its inception, signifying consistency in fund performance and allocation strategy going forward. At UTI AMC, Kulkarni manages ten other funds that haven’t done so well over the long run, though this fund and a few others have been exceptions. Looking at this fund’s performance and track record, even low-risk investors can take exposure to it through the SIP route.