UTI FLEXI CAP FUND RELATED QUESTION AND ANSWER
FREQUENTLY ASKED
Question No. 1. What are Flexi Cap Funds?
Answer. Flexi-cap
Funds have the flexibility to invest across the market capitalization spectrum
Vis., Large cap, Mid cap and Small cap stocks. Flexi-cap Funds could be
considered for building one’s core equity portfolio. UTI Flexi Cap Fund is a
flexi-cap fund which follows growth style of investing.
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Fund Snapshot
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Launch Date
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18th May, 1992
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Benchmark Index
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Nifty 500
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Month End AUM
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Rs. 18,405 Crores
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Fund Manager
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Mr. Ajay Tyagi
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Market cap biasness
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Agnostic to Market Cap
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Investment Style
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Growth
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Stock picking approach
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Bottom-up
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No. of Holdings
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53
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Data as of May 31, 2021
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Question No. 2. What are Growth Funds?
Answer. A growth
fund predominantly invests in companies with above-average growth compared to
their own industry or the economy in general. These companies endeavor to
compound wealth by reinvestment of their cash flows for future growth which
could be either organic or inorganic. Growth funds may own stocks that are
seemingly expensive but the continual compounding in their intrinsic value
justifies the valuation premium. While UTI Flexi Cap Fund is a growth fund it
looks at investing into quality along with growth.
Question No. 3. What
approach does the fund follow for stock selection?
Answer. There are
broadly two methods of stock selection - Bottom-up or Top-down approach. UTI
Flexi Cap Fund follows Bottom-up approach for stock selection which means
focusing on factors related to the business viz., demand, pricing power,
substitutes etc., rather than focusing on macro economic factors.
Question No. 4. What
is the investment philosophy followed in UTI Flexi Cap Fund?
Answer. The Fund
follows a well defined investment philosophy in respect of stock selection and
framework for prudent portfolio construction. The Fund’s investment philosophy
is built around three key pillars namely, “Quality, Growth & Valuation”.
i.
“Quality” signifies the ability of a business to
sustain high Return on Capital Employed (RoCE) or Return on Assets (RoA) over a
long period of time. Truly high quality businesses are those that are able to
generate high RoCEs and/or RoAs even during difficult times for their industry
or sector and therefore operate above their cost of capital at all times. More
often than not, a business with high RoCE/ RoA shall be able to generate strong
cashflows and these strong cash flows become the source of economic value
creation.
ii.
“Growth”
on the other hand signifies long term secular growth for the business. The fund
emphasizes on businesses that have steady and predictable growth trajectory
rather than cyclical and volatile growth. Cyclical growth can be highly
unpredictable and can surprise investors in either direction, as against
secular growth where there is relatively more certainty in understanding the
long term drivers and hence future outcomes. While high quality businesses
create economic value, a high growth business enables compounding of this
economic value. It is for this reason that the fund’s favorite hunting ground
for stock selection is the intersection of quality and growth.
iii.
The last pillar of the fund’s investment
philosophy is “Valuations”. Valuations are very important as an entry point
into a great business and, therefore, one should very carefully study this
before buying a stock. Although a Price to Earnings (P/E) multiple is a good
starting point for understanding the valuations of a business but it is also a
widely misunderstood and abused valuation technique. More often than not a high
RoCE and high growth business would deserve a high P/E and would still be an
attractive investment for long-term investors who invest on the basis of
business fundamentals rather than on the basis of what would outperform in the
next few months or quarters. Therefore, before reaching to a judgement by
looking at P/Es optically one has to carefully study the characteristics of
each business and then establish the fair valuation band for each of them.
Question No. 5. What
is the portfolio composition of UTI Flexi Cap Fund?
Answer. The
Portfolio composition of UTI Flexi Cap Fund is based on –
Active Share
Active share is defined as the fraction of a portfolio or
fund that is invested differently than its benchmark’s constituents. Portfolio
which is deployed in the same way as the benchmark would have “Nil” active
share. For example, an active share of 80% implies that 20% of the portfolio
capital was invested in a similar way as the index. As of May 31, 2021, UTI
Flexi Cap Fund has an active share of about 67%, indicating the fund’s high
conviction in following its bottomup philosophy rather than following the
benchmark. A high active share means higher active calls taken by the fund
manager, and therefore the Fund’s returns could vary by a wider margin as
compared to the Benchmark’s returns.
Question No. 6. P/E
ratio of UTI Flexi Cap Fund seems to be way high, is there still Enough room
for return generation from current P/E levels?
Answer. The
deconstruct of P/E multiple would conclude that P/E multiple is a function of
Return on Equity (RoE) and growth that the business is able to deliver. If
business is able to deliver high growth at healthy RoE, then business would
naturally trade at high multiples. Thus, there is a fundamental reason for
quality businesses that grow faster than industry to trade at high P/E
multiple.
Growth is an important driver of creating future value in a
business provided it comes at high profitability. Since the fund’s focus is on
businesses which are both profitable as well as high growth, the businesses
that are part of the portfolio to are expected to create significant value over
the years regardless of what happens to their stock prices in the short-term.
P/E ratio is able to capture the earnings of a business only over the next one
year or at the most next two years. High growth business that can grow
profitably for years to come may look expensive on a PE basis but because of
their longevity of growth and future value creation potential they could still
be cheap compared to their intrinsic value.
Finally, robust economic characteristics also get reflected
in the high Free cash flow that businesses generate. Free Cash Flow is a better
way to capture the value generated by a business compared to looking at their
earnings only. While price earnings multiple of the fund may seem to be
expensive as compared to benchmark in the recent past, on price to Free cash
flow multiple the fund, it is almost same as the Benchmark.
Question No. 7. How has UTI Flexi Cap Fund performed during
market draw downs?
Answer. Analysis
of observations when Nifty 500 corrected >20% over the last decade
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Date From
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Date To
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UTI Flexi Cap Fund – Growth
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Nifty 500 TRI Returns
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Outperformance
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16-Oct-07
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17-Mar-08
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-17.48
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- 21.17
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3.69
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17-Mar-08
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27-Oct-08
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-33.75
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-45.26
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11.51
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09-Nov-10
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20-Dec-11
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-20.83
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-28.42
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7.59
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17-Jan-20
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23-Mar-20
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-31.63
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-38.11
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6.48
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Fund’s NAV fell less than the fall in benchmark index Nifty
500, generating Alpha on all these occasions
Question No. 8. What
are the average holdings among the market caps (Large, Mid and Small) of the
fund for last 24 months?
Answer. Average
holding for last 24 Months – Large – 65% | Mid – 27% | Small – 8%
Question No. 9. What
is portfolio turnover ratio? What is the annual portfolio turnover ratio of the
fund?
Answer. Portfolio
Turnover Ratio represents the churn in the underlying stocks or the percentage
of the portfolio holdings that have changed over a time period. The strategy
followed by the fund is very strict in selecting businesses with high quality
and a long runway for growth. The annual portfolio turnover of the fund is
usually between 10% to 15%, which determines the conviction of the fund in
holding on to its portfolio through the long term with out churning the
portfolio often.
Question No. 10. What
are top 5 active stock bets over last 12 months in the portfolio?
A.
Overweight Top 5
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Security Name
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Average Weight (%)
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Active Weight (%)
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Bajaj Finance Ltd.
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6.25
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4.85
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Larsen & Toubro Infotech Ltd.
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4.60
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4.42
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Astral Ltd.
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3.12
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3.00
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Info Edge India Ltd.
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3.04
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2.67
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AU Small Finance Bank
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2.40
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2.19
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Average Weight and Active Weight is average of last 12
months
B. Underweight Top 5
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Security Name
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Average Weight (%)
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Active Weight (%)
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Reliance Industries Ltd.
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-
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8.28
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ICICI Bank Limited
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-
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4.06
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Hindustan Unilever Limited
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-
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2.52
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ITC Limited
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-
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2.23
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Larsen & Toubro Ltd.
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-
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1.77
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Average
Weight and Active Weight is average of last 12 months
Data period
– 31 May 2020 to 31 May 2021
Active stock weight refers to the
Overweight and Underweight stocks within the portfolio as compared to the
benchmark.
Question No. 11. Key detractors and
contributors to the performance for the previous trailing year for the fund –
Answer. Key detractors and contributors
for the fund’s performance are
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Stocks
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Detractors
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Contributors
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Stocks
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1. ICICI Bank Ltd.
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1. Bajaj Finance Ltd.
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2. Shree Cement Ltd.
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2. Astral Ltd.
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3. SBI Ltd.
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3. Larsen & Toubro Infotech Ltd
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4. Ajanta Pharma Ltd.
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4. Hindustan Unilever Ltd.
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5. Torrent Pharma. Ltd.
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5. ITC Ltd..
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Sector
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Detractors
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Contributors
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Sector
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1. Pharma
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1. Consumer Goods
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2. Utilities
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2. Financial Services
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3. Chemicals
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3. IT
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4. Textiles
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4. Oil & Gas.
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5. Cement
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5. consumer Services
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Data period
– 31 May 2020 to 31 May 2021
Question No. 12. Why invest in UTI Flexi Cap Fund?
Answer. A. Prudent
& Strong Portfolio of Quality Businesses: The Fund consists of high quality
businesses that have an ability to show strong growth for a long period of time
i. “Quality” companies expected to perform across market
cycles
ii. “Quality” companies may mitigate draw down
iii. “Quality”
companies likely to rebound faster based on the strong fundamentals of balance
sheets & business models iv.“Quality” companies are across market caps and
are not restricted only to large caps
B. Focused and Disciplined: Building portfolio around such
high quality businesses that are expected to show secular long term growth and
are not cyclical in nature
C. Long Term Wealth Creation: By investing only into
companies that may generate economic value
UTI Flexi Cap Fund (An open ended equity scheme investing
across large cap, mid cap, small cap stocks) This product is suitable for
investors who are seeking*:
• Long term capital
appreciation
• Investment in
equity instruments of companies with good growth prospects across the market
capitalization spectrum
Investors should
consult their Mutual Fund Distributor if in doubt about whether the product is
suitable for them
