Would you prefer a diversified portfolio of stocks or like taking focused bets? If you like the latter, then that is what UTI Focussed Equity, the new fund offer from the UTI Mutual stable, will offer. The new fund will be a three-year closed-end diversified equity fund. The NFO will close on August 27.
UTI Focused Equity Fund will seek to take focused exposure in stocks and build a portfolio of upto 30 stocks. It will have no sector or stock bias and can go upto 8% in single stock and upto 30% in single sector.
As is the case with UTI’s stock selection strategy, this fund too will select stocks with positive operating cash flows and having profits after taxes of over Rs 50 crore. The fund will be managed by Anoop Bhaskar and Lalit Nambiar.
The AMC’s idea of going for a fixed-period focussed equity portfolio at this juncture stems from its favourable view on key macro factors. With both the CPI and WPI steadily coming off their highs, the scope for lower interest rates now seems possible over the next 12 months or so.
Such a fall could trigger the very low credit growth now. From over 30% credit growth seen during 2005-06, credit growth is now 14%. Any small dip in rates, leading to improved credit growth would mean significant headroom for corporate profit margins to improve.
Data below shows that current EBITDA margins for companies are well below the average and have space to improve.
An increase in profit margins would lead to earnings expansion. Analysts expect Sensex earnings to grow by 17% CAGR between March 2013 and 2017.
UTI Focussed Equity is suitable for those willing to lock their money for 3 years and wish to have focussed exposure with a compact portfolio. If you believe that a fund manager can perform the job better with a closed-end approach that provides leeway to buy and hold and also have no redemption pressure, then you might want to consider this as an option.
Also, for a fund that wishes to adopt an concentrated approach to stocks, constant inflows may be a challenge in terms of deploying the money effectively. This appears to be one more reason for the closed-end approach. While there would be no track record to fall back upon, the track record of the fund managers have been consistent.
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