Sector and theme-based funds are often considered risky. These funds, unlike other diversified equity funds, tend to under-perform or outperform markets considerably depending on the business cycle.
But UTI Transportation & Logistics fund, the only sector fund within its category, has made healthy gains in comparison with broader indices over the past three and five years.
This fund invests mainly in sectors such as auto/auto ancillaries, railway, ports, airports, roads, shipping, courier and other transportation, and logistics.
The fund, started in April 2004, consistently lagged in returns compared to the Nifty 50 until February 2014. But since then, thanks to the rally in the underlying stocks, the fund has made a strong comeback.
It has raked in a gain of 170 per cent between the end of 2013 and mid-May 2017, compared to a 50 per cent gain in Nifty 50 during the same period. Currently, the fund’s assets under management are close to ₹1,065 crore.
The fund’s one, three and five-year annualised returns are about 27.7 per cent, 29.9 per cent and 30.3 per cent, respectively, higher than that of both Nifty 50 and S&P BSE Auto across the same periods.
Besides, despite bouts of market volatility during 2016, the fund has managed to outperform Nifty 50.
Shifting market capThe fund has been systematically increasing its exposure to companies with market capitalisation greater than ₹10,000 crore (large-cap stocks). The allocation to large-cap stocks, which was about 35 per cent at the end of April 2012, was 72 per cent at the end of April 2017.
Currently, the fund has invested across automobiles, tyres, auto ancillaries, castings & forgings, logistics, ports, etc. As of April 2017, the fund holds 36 stocks.
The allocation to the automobile sector (passenger cars, LCV/HCV, motorcycles, scooters and three-wheelers) stood at 46 per cent, while that in auto ancillaries was 14 per cent. Port operators and transportation companies constitute 11 per cent of the portfolio, as of April 2017. The rest is in companies in bearings, castings & forgings, tyres, engines and engineering.
Of the 36 stocks held currently, 33 have been in the fund’s portfolio over the past two years.
As of April end, the fund has a major exposure to Maruti Suzuki India (11.3 per cent) and Tata Motors (10.4 per cent). Other companies like Hero MotoCorp, Mahindra & Mahindra and Eicher Motors constitute between 5.7 and 6.5 per cent of the portfolio. Allocation to other stocks is diffused.
A consistent increase in the proportion of outperforming auto stocks like Maruti Suzuki India and Tata Motors aided the fund’s performance. Besides, stocks such as Adani Ports & SEZ, Eicher Motors and MRF have shown strong growth over the past one year.
But stocks such as Gujarat Pipavav Port, Texmaco Rail & Engineering and Container Corporation of Indiahave been under-performers over the last one year.