uti mf investment process · 2019-01-17 · investment philosophy long term orientation wealth...

UTI MF Investment Process(Domestic Equity Portfolio)

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Presentation Flow

Investment Philosophy

Team Structure

Investment Process – Equity Portfolio

Portfolio Construction

22

Investment Philosophy

Long Term

Orientation

Wealth

Creation

Style

Discipline

Alpha-

Generation

Companies that can self

sustain their growth and

have the ability to invest

at high rates of return or

Companies that

experience an

improving trajectory

bought at attractive

valuations

Alpha-not just from

buying the right stocks

but also from not buying

the wrong stock

The essence of asset

management, is to stay

true to the mandate

through the different

moods and seasons of

the market. It also

enables differentiation

between portfolio

strategies.

Clear articulation of

investment beliefs and a

well defined investment

process are key to

sustaining Alpha

generation over long

periods.

333

About Our Investment Management Team

4

Sanjay DongreFM – Domestic EquityTotal Work Exp: 24 Years

With UTI AMC: 24 Years

Kaushik BasuFM – Domestic EquityTotal Work Exp: 34 Years


Swati Kulkarni, CFAFM – Domestic EquityTotal Work Exp: 34 Years


Ajay Tyagi, CFAFM – Domestic Equity& Offshore FundsTotal Work Exp: 18 Years


Sachin Trivedi, CFAFM – Domestic Equity& Head of ResearchTotal Work Exp: 17 Years


Tracks Auto, Logistics

Amit Premchandani, CFAFM – Domestic Equity &Senior Research AnalystTotal Work Exp: 13 Years


Tracks Banks , NBFCs, Cement

Kamal Gada, CFAFM – Overseas Invest.& Research AnalystTotal Work Exp: 13 Years


Tracks Energy, Fertilizer, Media,

Chemicals, Infra construction

Vishal Chopda, CFAFM – Domestic Equity & Research AnalystTotal Work Exp: 11 Years


Tracks FMCG, QSR, Retail,

Consumer Durable, Telecom

Parag Chavan, CFAResearch AnalystTotal Work Exp: 8 Years


Tracks Metals & Mining, Utilities,

Building Materials, Sugar,

Healthcare, Hotels

Preethi R SResearch AnalystTotal Work Exp: 6 Years


Tracks Auto Ancillaries,

Insurance, HFC & NBFCs

Sharwan Goyal, CFA FM – Domestic Equity & Portfolio AnalystTotal Work Exp: 12 Years


Lalit Nambiar, CFAFM – Domestic EquityTotal Work Exp: 24 Years


Deepesh AgarwalResearch AnalystTotal Work Exp: 6 Years

With UTI AMC: Less than a year

Tracks Capital Goods, Textiles

Vetri SubramaniamHead Equity & Fund ManagerTotal Work Exp: 26 Years

UTI AMC: 1. 5 Years

V SrivatsaFM – Domestic Equity& Offshore FundsTotal Work Exp: 18 Years


Rajeev Kumar GuptaFM – Domestic EquityTotal Work Exp: 36 YearsWith UTI AMC: 29 Years

Nitin JainResearch AnalystTotal Work Exp: 10 Years

With UTI AMC: Less than a year

Tracks IT & Internet Sector

Investment Universe & Portfolio Construction

INVESTMENT UNIVERSE

About 320 companies, spanning large, mid & small market

capitalisation

PORTFOLIO CONSTRUCTION

• Based on the Fund Mandate & Internal Prudential

investment norms

• Considerations for Valuations, Sector Weights

• Market Cap bias & Active Share

SCREENING THE UNIVERSE – UTI PROCESS

Objective Factors• Operating Cash Flow

• Return on Capital/Equity

Subjective Factors• Management Competence

• Growth Prospects

SCREENING THE UNIVERSE –

UTI PROCESS

PORTFOLIO

CONSTUCTION

INVESTMENT PROCESS LED BY CONVICTION & STYLE CONSISTENCY

INVESTMENT UNIVERSE

320COMPANIES

This is a comprehensive and ongoing feature of Investment process.

5 Data as on December 31, 2018

97% 87% 82% 71% 57%99% 96% 95%

75% 90%

S&P BSE 100 S&P BSE 200 Nifty LargeMicap

250

Nifty Midcap 150 Nifty 500

Coverage vs Major Indices

% of Cos. Covered % of Market Cap Covered

122

111

95

3,951

17,986

100,454

Small Cap

Mid Cap

Large Cap

Coverage based on Market cap

Market Cap. Rs in bn No of Cos. Covered

- If a company cannot earn returns in excess of its cost of capital it

destroys value

- A company with healthy capital return ratios creates value by investing

its profits in its business and that creates the magic of compounding

- Profits are an opinion, cash is a fact

- Profits in financial statements could be distorted by accrual, amortization

and non cash items and It does not account for changes in inventory,

debtors and creditors.

- In the absence of operating cash flow a company needs to continuously

borrow money or dilute equity to fund its operations

Screening the Universe

Cash Flow from

Operations

(CFO)

Factors Why it matters?

Return on Capital/

Equity

(RoCE / ROE)

6

Are these factors Persistent?

Analysis

It is much easier

to analyze the past and

present than predict

the future

Return Expectation

We invest based on analysis

of historical data but returns

depend on what happens in

the future

Persistency

Our emphasis on these two

factors –operating cash and

return on Capital/ Equity is

underlined by the high

degree of persistency

exhibited by these factors

7

Methodology – Persistency analysis

Sectors C1 C2 C3

All companies (excluding Financials)

Positive CFOIn all previous 5

years

in 3 or 4 of the

previous 5 years

In 2 or less of the

previous 5 years

R1 R2 R3

RoCE> 18%

(5 year average)

> 10% - 18%

(5 year average)

< 10%

(5 year average)

R1 R2 R3

Banks & HFCs

ROA > 0.8 &

Leverage < 18x

In all previous 5

years

in 3 or 4 of the

previous 5 years

In 2 or less of the

previous 5 years

NBFCsROA > 2 &

Leverage < 8x

In all previous 5

years

in 3 or 4 of the

previous 5 years

In 2 or less of the

previous 5 years

Companies are divided into

Cash Flow Tiers (C): 3 Tiers based on the number of years in which they have generated positive

operating cash flows in the previous 5 years (for manufacturing cos)

RoCE/ implied ROE Tiers (R): 3 Tiers based on the previous 5 year average return on capital

(for manufacturing cos) & consistency in implied ROE (RoA X Leverage) for Financials over 5 years

Period of Analysis – 22 years

(FY 1997 to 2018)

Universe of companies

analyzed - 1280 companies

(includes MF industry holdings,

S&P BSE 500 Index companies

since 2002)

CFO – Cash Flow from

Operations

RoCE – Pre tax RoCE

(EBIT/Avg capital employed)

RoA – Return on Asset, RoE – Return on Equity, CFO – Cash Flow from Operations, RoCE – Return on Capital Employed,

EBIT – Earnings before Interest and Taxes. Data as of 31st March, 20188

Persistency Analysis

Probability of companies migrating across the buckets

FY 2008-13 Change in Bucket FY 2013-18(Next 5 Years)

Probability

C1 REMAINING IN C1 85%

C1 DETERIORATING TO C3 2%

C3 IMPROVING TO C1 18%

R1 REMAINING IN R1 61%

R1 DETERIORATING TO R3 13%

R3 IMPROVING TO R1 10%

9

Persistency Analysis

Probability of companies migrating across the buckets

FY 1998-03 Change in Bucket FY 2003-08(Next 5 Years)

Probability

C1 REMAINING IN C1 73%

C1 DETERIORATING TO C3 5%

C3 IMPROVING TO C1 15%

R1 REMAINING IN R1 68%

R1 DETERIORATING TO R3 8%

R3 IMPROVING TO R1 29%

10

Persistency Analysis over 5 year buckets

Cash Flow from Operations (CFO) based performance

How likely is it that the performance in the preceding 5 years will persist in the next 5 years?

The probability of a C1 company remaining C1 at the end of the next 5 years is quite high

The probability of a C1 company moving down to C3 or a C3 company moving up to C1 is

quite low.

% of Cos Trend of 5 Years Persistency

Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

From To Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

C1 C1 79 73 73 70 70 73 73 72 72 73 78 81 85

C1 C2 21 25 23 25 26 25 24 24 24 23 19 15 12

C1 C3 1 2 5 6 5 2 3 4 4 3 3 4 2

C2 C1 61 53 43 41 44 38 37 42 44 43 45 48 53

C2 C2 35 36 42 39 35 40 42 39 40 38 39 41 39

C2 C3 4 12 15 21 21 23 21 19 17 19 17 11 8

C3 C1 16 20 15 11 13 9 4 12 15 15 14 15 18

C3 C2 62 50 48 46 40 40 46 47 40 44 41 43 45

C3 C3 22 30 37 42 47 51 50 41 45 41 45 42 37

11

Persistency Analysis over 5 year buckets

How likely is it that the performance in the preceding 5 years will persist in the next 5 years?

RoCE/ROE based performance

The bar in terms of RoCE/ ROE is more stringent than cash flow. But this metric has cyclical

movements

R1 companies have a tendency to remain R1 and R3 companies display a high probability of

remaining R3

Movement down, from R1 to R3 or up, from R3 to R1 has lower probability, but identification of such

migration can either prevent value destruction or create value respectively

% of Cos Trend of 5 Years Persistency

From Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

From To Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

R1 R1 72 65 68 66 66 67 63 54 55 53 50 52 61

R1 R2 18 26 24 27 26 25 23 28 25 26 25 28 25

R1 R3 10 10 8 7 8 9 14 18 20 20 25 20 13

R2 R1 38 38 40 34 37 31 25 20 21 17 18 20 23

R2 R2 43 40 41 42 45 45 46 42 42 39 37 32 42

R2 R3 19 22 20 24 19 23 29 39 37 45 46 48 35

R3 R1 18 25 29 29 25 20 16 13 14 13 12 10 10

R3 R2 32 30 28 23 25 22 23 20 21 16 17 17 21

R3 R3 50 45 43 48 51 58 61 67 65 71 71 73 69

RoA – Return on Asset, RoE – Return on Equity12

Movement/distribution of companies among tiers

Movement/distribution of companies within CFO tiers

Movement/distribution of companies within RoCE tiers

CFO Tiers

period

ending

FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY18

C1 49% 47% 49% 52% 52% 52% 51% 49% 48% 49% 48% 48% 49% 50% 52% 55% 58% 65%

C2 37% 40% 39% 36% 36% 36% 35% 34% 33% 32% 33% 34% 33% 33% 31% 30% 29% 26%

C3 14% 13% 13% 12% 12% 12% 14% 18% 18% 19% 18% 18% 18% 17% 17% 16% 13% 9%

ROCE Tiers

period

ending

FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY18

R1 32% 32% 30% 31% 34% 38% 42% 47% 45% 44% 43% 40% 34% 34% 32% 31% 31% 34%

R2 41% 39% 38% 35% 32% 31% 30% 29% 29% 30% 29% 29% 30% 29% 27% 26% 26% 29%

R3 26% 28% 32% 34% 33% 31% 28% 24% 26% 26% 28% 31% 36% 37% 41% 43% 44% 37%

13

How is Wealth created?

Our process design enables us to

distinguish between companies.

Our wide range of strategies and

diverse Fund Managers can use

these inputs in the manner

appropriate to the fund mandate.

Companies that

experience an

improving trajectory

bought at attractive

valuations

Companies that can

self sustain their growth

and have the ability to

invest at high rates of

return

VALUEGROWTH

PROCESS

STRATEGIES

TEAM

14

Portfolio Construction

Fund Mandate: The fund mandate will dictate the overall portfolio strategy and the endeavor

would be to adhere to the mandate across economic scenarios & market moods

Impact of the screening mechanism: Preference for companies in ‘C1’, ‘C2’ and ‘R1’, ‘R2’

Investment strategies may invest in ‘C3’ and ‘R3’ companies, but risk management would be key

(probability v/s return)

Valuations

Sector weights

Market capitalization bias

Active share

15

Portfolio Characteristics- OCF & Return ratio Tiers

Portfolio as of December 31, 2018. Wtd. Avg. Mcap – Weighted Average Market Capitalization (Rs. In Crores)16

Scheme Fund ManagerAUM Wtd. Avg.

Mcap

CFO ROCE

(Rs. In Crs) C1 C2 C3 R1 R2 R3

UTI Equity Fund Ajay Tyagi 8,583 1,32,522 97 3 0 96 4 0

UTI MNC Fund Swati Kulkarni 2,147 82,256 95 5 0 75 17 8

UTI Mastershare Unit

SchemeSwati Kulkarni 5,570 2,24,529 86 9 5 68 24 8

UTI Dividend Yield Fund Swati Kulkarni 2,487 1,46,981 98 1 1 65 24 11

UTI Value Opportunities

Fund

Vetri Subramaniam

& Amit

Premchandani

4,374 1,85,570 90 10 0 59 28 13

UTI Long Term Equity Fund

(Tax Saving)

Vetri Subramaniam

& Lalit Nambiar1,086 1,32,073 87 11 2 51 35 14

UTI Core Equity Fund V Srivatsa 899 1,09,314 79 10 11 50 34 16

UTI Hybrid Equity Fund V Srivatsa 6,007 1,30,356 78 12 10 50 34 16

UTI Mid Cap Fund Lalit Nambiar 3,783 17,066 76 21 3 36 43 21

Active Management

Data as on December 31, 201817

Scheme Fund ManagerAUM

BenchmarkActive

Share (%)(Rs. In Crs)

UTI Mid Cap Fund Lalit Nambiar 3,783 Nifty Midcap 150 72.35

UTI Core Equity Fund V Srivatsa 899 Nifty LargeMidcap 250 69.79

UTI Equity Fund Ajay Tyagi 8,583 S&P BSE 200 66.68

UTI Long Term Equity Fund (Tax Saving)Vetri Subramaniam &

Lalit Nambiar1,086 S&P BSE 200 61.79

UTI Hybrid Equity Fund V Srivatsa 6,007 S&P BSE 200 62.86

UTI Value Opportunities FundVetri Subramaniam &

Amit Premchandani 4,374 S&P BSE 200 54.16

UTI MNC Fund Swati Kulkarni 2,147 Nifty MNC 34.83

UTI Dividend Yield Fund Swati Kulkarni 2,487 Nifty Dividend Opp. 50 47.82

UTI Mastershare Unit Scheme Swati Kulkarni 5,570 S&P BSE 100 42.10

Diverse Strategies – Style Discipline

MarketCapitalisation(` In Crores)

Return on

Equity

Price to

Earnings

Price to

Book

UTI Mastershare Unit Scheme UTI Equity Fund UTI Value Opportunities Fund

Return on

Equity

Price to

Earnings

Price to

Book

UTI Core Equity Fund UTI LTEF (Tax Saving) UTI Hybrid Equity Fund

Fund Benchmark

18 PE and PB is based on Trailing (TTM), Data as on December 31, 2018


6.01 4.97

26.47 27.77

18.81 17.31

265,856 224,529

6.04 7.38

27.30 38.21

18.52 20.71

239,135 132,522

6.04 4.35

27.30 26.50

18.52 15.56

239,135 185,570

5.99 3.49

29.22 22.78

17.24 15.12

145,165 109,314

6.04 3.82

27.30 25.53

18.52 14.14

239,135 132,073

6.04 3.28

27.30 23.00

18.52 14.46

239,135 130,356

Diverse Strategies – Style Discipline

Return on

Equity

Price to

Earnings

Price to

Book

UTI Mid Cap Fund UTI MNC Fund

Fund Benchmark

19

UTI Dividend Yield Fund

PE and PB is based on Trailing (TTM), Data as on December 31, 2018


5.86 4.62

31.76 26.25

15.28 13.48

18,565 17,066

9.29 6.22

22.30 22.35

27.60 20.69

221,072 146,981

13.61 13.36

39.87 44.14

26.28 22.80

94,488 82,256

UTI Holdings, UTI Universe and S&P BSE 500 Index Positioning

Companies which have been not part of S&P BSE 500 Index since 2003 are excluded, Aggregated based on Equity and Hybrid

Funds, Cash flow analysis is excluding Financial Services Sector


CFO

UTI Holdings UTI Universe S&P BSE 500 Index

UTI Holdings Rs bn

No. of Cos

% of AUM

% of CosMarket

cap Rs bnNo. of Cos

% of Mcap

% of CosMarket

cap Rs bnNo. of Cos

% of Mcap

% of Cos

C1 282 182 84% 79% 81,380 216 89% 80% 86,934 311 86% 75%

C2 32 25 9% 11% 5,193 32 6% 12% 7,845 67 8% 16%

C3 12 7 4% 3% 3,076 9 3% 4% 3,926 21 4% 5%

IPOs/NA 10 15 3% 6% 2,021 12 2% 4% 2,760 18 3% 4%

Total 336 230 100% 100% 91,670 269 100% 100% 1,01,465 417 100% 100%

ROCE

UTI Holdings UTI Universe S&P BSE 500 Index

UTI HoldingsRs bn

No. of Cos

% of AUM

% of CosMarket

cap Rs bnNo. of Cos

% of Mcap

% of CosMarket

cap Rs bnNo. of Cos

% of Mcap

% of Cos

R1 291 127 63% 46% 73,091 149 59% 46% 77,640 222 57% 45%

R2 112 90 24% 33% 31,418 102 25% 31% 33,363 133 25% 27%

R3 45 41 10% 15% 13,727 57 11% 17% 17,902 120 13% 24%

IPOs/NA 12 18 3% 7% 5,482 19 4% 6% 6,372 25 5% 5%

Total 460 276 100% 100% 1,23,719 327 100% 100% 1,35,277 500 100% 100%

20

UTI Aggregate vs MF Industry

Aggregated based on Equity and Hybrid Funds


CFO ROCE

C1 C2 C3 IPOs/NA R1 R2 R3 IPOs/NA

UTI MF 84% 9% 4% 3% 63% 24% 10% 3%

MF Industry 83% 8% 6% 3% 56% 25% 16% 4%

S&P BSE 500 Index 86% 8% 4% 3% 57% 25% 13% 5%

21

Thank YouThe information contained in this document is for general purposes only and is not an offer to sell or a solicitation to buy/ sell any mutual fund units /

securities. The information / data here in alone are not sufficient and should not be used for the development or implementation of an investment

strategy. The same should not be construed as investment advice to any party.

REGISTERED OFFICE: UTI Tower, ‘Gn’ Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400051. Phone: 022 – 66786666. UTI Asset Management Company

Ltd (Investment Manager for UTI Mutual Fund) Email: [email protected] . (CIN-U65991MH2002PLC137867). For more information, please contact the nearest

UTI Financial Centre or your AMFI/NISM certified UTI Mutual Fund Independent Financial Advisor (IFA) for a copy of the Statement of Additional

Information, Scheme Information Document and Key Information Memorandum cum Application Form.

Disclaimers: The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation

to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future

movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this

document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on

this document and should understand that statements regarding future prospects may not be realized. The recipient of this material is solely responsible

for any action taken based on this material. Opinions, projections and estimates are subject to change without notice.

UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund

(acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including

special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense

arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due

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Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

uti mf investment process · 2019-01-17 · investment philosophy long term orientation wealth...

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