Being Opportunistic - UTI Opportunities Fund

Here’s an often asked question: How are the ‘opportunity’ category funds different from the rest of the diversified pack? They don’t have a defined investment approach as compared to diversified funds. Depending on the outlook, a fund manager can take any stock, sector, cash and other portfolio-related calls without any restrictions. This may result into quicker portfolio churning, thus leading to a higher level of cost and risk. Thus, opportunity funds provide greater flexibility to the fund manager. Such an approach can result in higher returns, albeit with greater risk factors attached. Such funds also have better potential to outperform the diversified fund category when the markets are buoyant. But during market falls they experience a more painful plummet.

 Alike other opportunity funds, this fund too concentrates merely on 2-3 sectors and a few stocks at a time, depending on the outlook. It is the outcome of merging five different schemes of the UTI in 2005, and it didn’t manage to do well in its early years. However, since the last two years or so, the fund has been consistent in outperforming the category returns. Over its three-year period, the fund outperformed its category by 619 basis points. However, the fund posted its most astonishing performance over the last one year when it managed to beat the category returns by 1,937 basis points. As per the fund manager, the onus of such a performance goes to judicious portfolio calls on sectors, stocks and cash.

In 2007, the fund started with a higher exposure in the FMCG and auto sectors. However it then shifted its focus to construction and capital goods. In January 2008, due to the stretched valuations in these sectors and the changing market conditions, the fund booked profit, increased cash and large-cap exposure, and moved into defensive sectors like FMCG, etc. In early 2009, the fund entered banking and construction and took active derivatives and cash calls in the last two years.

In June 2009, the fund’s top two sectors viz. energy and financials contributed 41 per cent of the fund’s total assets. Out of its 30 stocks’ portfolio, the fund’s top ten stocks contributed over 40 per cent of the assets. However, the fund deviated from its asset allocation strategy wherein its cash and equivalent holdings went up by almost 18 per cent of the total assets as against the stipulated 10 per cent level. As per the fund manager, looking at the markets’ overrun in the short-term and current volatility, the fund booked profit on some stocks and built up high levels of cash. However, such higher cash levels will be brought down as the fund has recently rewarded its investors by distributing dividend.

Since December 2006, Harsha Upadhyaya has taken over this fund and managed it so well that it’s in the top league. Besides, most of the other funds managed by Harsha have managed to beat the category in the long run. This fund seems more like a diversified fund, and looking at its performance and fund manager’s aptitude, moderate risk investors can take a limited exposure to this fund.