Caution is not really a strategy that pays off during market rallies. But it certainly helps those who would rather trade in some extra returns for lower risk and more stability.
The old war horse of UTI Mastershare suits that middle-of-the-road investor, with its strategy of shifting into debt and cash when markets look pricey, sticking to bluechips and shunning frequent shifts in sector choices.
While UTI Mastershare lacks the flashy returns of chart-toppers, it usually keeps ahead of its BSE 100 benchmark.
On a rolling return basis over the past seven years, the fund has beaten its benchmark about 70 per cent of the time, a reasonable figure. Investors who would prefer lower volatility can buy units of the fund. In the one-, three-, and five-year timeframes, UTI Mastershare has delivered returns of two to eleven percentage points more than the BSE 100. Its returns, compared with peers in the large-cap space, place it in the mid-quartile section across time frames.
But several top-quartile performers, such as HDFC Top 200, Birla Sun Life Long Term Advantage or ICICI Prudential Top 100, include a larger share of mid-cap stocks, which pushes up returns. UTI Mastershare, on the other hand, rarely goes over 8 per cent in mid-caps (stocks with market capitalisation of less than ₹10,000 crore).
In times when markets trend lower, UTI Mastershare squarely beats both the benchmark and the category average.
In the 2011 period, for example, the BSE 100 lost 7 percentage points more than the Mastershare fund; the large-cap category on an average lost 5 percentage points more than the fund.
In bull markets, though, the fund’s sticking to the higher end of the market capitalisation spectrum, compared with the spread in the BSE 100 index, capped returns.
The fund has a strategy of moving away from equities when markets run up. While that helped in markets such as the one in 2011, it wasn’t the case during the rally of 2009-10. The fund spent the first half of 2009 with an equity allocation of less than 90 per cent, leaving its returns lower than the BSE 100.
Sector choices Banking was the top sector pick barring 2013 when the fund shifted heavily into software stocks given the turmoil in the banking space. This apart, the fund has, of late, picked up automobile and auto ancillary stocks, besides infrastructure and cement stocks.
All these sectors could see a further rally if reforms and economic growth unfold as expected. Holdings in defensive pharma stocks have held steady between 8 and 10 per cent of the portfolio for the past four years.
Software stocks are the next highest holding after banks.