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When the going gets tough, UTI gets going!

Aabhas Pandya

It is time for the rest of the fund industry to sit up and take notice as the new generation equity from Unit Trust of India deliver impressive returns amidst turbulent market conditions. The Unit Trust of India (UTI) has long been subject to flak from the investing public due to poor performance of its equity funds. In fact, all the close-end equity funds of UTI, which were converted into open-end schemes on eve of redemption, have seen a sharp fall in their unit capital as investors have exited these funds due to meagre returns.

But for the six-month period ended June 30, 2000, UTI Petro, UTI Services Sector and UTI Software are the only funds in the entire sector and specialty series, which have posted positive returns. In fact, UTI Services Sector Fund is the top performer in the universe of equity funds, with a whopping six-month return of 72.75 per cent as on June 30, 2000. The fund has seen its net asset value (NAV) vault from Rs 21.22 on January 3 to Rs 35.40 on June 30. The three sectoral funds were launched in May 1999 as part of the five fund sectoral series. Apart from Petro, Services and Software funds, UTI simultaneously launched Pharma and Brand Value funds.

The equity market has been extremely volatile for the last six months with the BSE Sensex initially gaining around 660 points since January 3, 2000 to touch an all-time high of 6034 points on February 11. However, under a sustained bear mauling, the Sensex lost over 2000 points to touch a low of 3920 points on May 22. Since then, the benchmark has partially recovered by gaining net 700 points to touch 4600-levels on July 19.

Among other UTI funds, which have posted gains, UTI Petro has delivered a handsome return of 23.28 per cent in the last six months. Though a distant second to the Services Sector Fund, UTI Petro is the second best performing fund in the entire spectrum of equity funds. The performance of UTI Software Fund is also impressive since it is the only technology fund, which has posted a positive return of 14.23 per cent while the category of software/technology funds has seen an average loss of 6.78 per cent as on June 30, 2000. Apart from giving healthy returns, both UTI Software and Services Sector funds have given a 20 per cent dividend each to their investors.

The sterling performance of UTI's Software and Services sector funds is all the more surprising given the concentrated nature of the portfolios in technology stocks as on March 31, 2000. For instance, the top three holdings of UTI's Services Sector Fund - Global Tele-Systems, BSES and Pentamedia Graphics - constituted nearly 50 per cent of the portfolio as on March 31, 2000.

While Global Tele and BSES have gained by 29 and 21 per cent, respectively, Pentamedia Graphics has lost a whopping 60 per cent since the beginning of the year. While the latest holdings of the fund is not available, it seems the fund manager has been actively churning the portfolio, which explains the 73 per cent return as on June 30, 2000. In the case of UTI Software, the holdings have not been restricted to software stocks alone but the fund has also invested in telecom and media stocks.

On the other hand, returns by UTI Petro are attributed to the near 35 per cent gain by Reliance Industries since the beginning of this year. As on March 31, 2000, the fund has invested 60 per cent of its corpus in the petrochemicals major. Besides Reliance, the fund has a 17 per cent exposure to Hindustan Petroleum Corporation.

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Source: Value Research

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