For those of you looking closely at the equity fund performance charts over 1-, 3- and 5-year time frames, UTI Transportation and Logistics Fund would have merited attention. The fund would have found a place in the top five lists in each of the above time periods.
This sector fund, with a majority of its assets in stocks of automobile and auto components, has been successful on two counts:
One, it partly gained from the ‘consumption play’ that took consumption themes to new highs until 2012. Companies that sold cars and two-wheelers, as well as those that rode the rural consumption wave such as tractor manufacturers, all benefited from multiple legs of such a rally.
Two, those segments that depended on ‘economic growth’ and were cyclical plays on the economy – such as commercial vehicles and auto components – also partly benefited over the last 5 years, at least over the period immediately following the 2008 meltdown.
That a seasoned fund manager like Anoop Bhaskar took over the fund few years ago also added impetus to its performance.
The result – the fund delivered a compounded annual return of 31.8% in the last 5 years. That means you would have made close to 4 times your initial investment over this period.
UTI Transportation and Logistics Fund was, until 2008, called UTI Auto Sector Fund. Its objective and strategy became more broad based post the change in mandate. In these avatars, the fund delivered 16.6 per cent compounded annually since its inception in April 2004 – that is a good 10 years ago.
There are no strict comparisons for this fund as the only other auto sector fund from the JM stable was merged. However, a comparison with the CNX Auto Sector Index (the fund’s benchmark UTI Transportation & Logistics Index is not available in public domain), suggests that while the fund comfortably beat this index over 1-, 2- and 3-year time frames, it just managed to keep pace over a 5-year period and marginally underperformed (by two percentage points) the index since the fund’s inception in 2004.
While the fund comfortably outpaced broad markets since the recovery post 2008, it has not been consistent in beating the CNX Auto Index.
The fund made a mark in this regard in 2013, delivering close to 24% in a year when the Auto Index delivered just 8.5% and the CNX Nifty managed just 5.9%. The fund’s timely call on auto ancillary segments such as batteries and tyres did exceedingly well, in a weak rupee environment. The fund has continued this winning streak in 2014 till date as well.
UTI Transportation & Logistics Fund has stocks outside of the auto sector that still fit the fund’s theme. Stocks in shipping companies such as Great Eastern Shipping, ports such as Gujarat Pipavav Port and Adani Ports and SEZ, infrastructure plays such as Texmaco Rail & Engineering are some of the picks outside of auto. As of March 2014, Maruti Suzuki was the fund’s top stock, accounting for close to 8% of its assets.
The fund was overweight on two-wheeler and auto component plays such as TVS Motor Company, Eicher Motors (Royal Enfield), Wabco India and Amararaja Batteries.
It was slightly underweight on commercial vehicle heavyweights (M&M, Tata Motors, Bajaj Auto) as these segments await an economic recovery to haul them from their current slowdown in volumes.
UTI Transportation & Logistics is a high risk fund that also shows high standard deviation in performance, meaning that the fund’s returns can be quite inconsistent. While investors holding the fund can continue with it, fresh investors need to be aware of a few risk factors:
– While the fund could receive a boost from any economic recovery, that it is laden with stocks from a sector that is highly interest rate sensitive makes it a high-risk fund in the current environment.
– While FIIs have traditionally been stable shareholders in automobile companies, their holding in many auto component makers have reached multi-year highs. This makes the sector highly susceptible to any FII activity – especially outflows.
– High exposure to single stocks (albeit at not more than 8% currently) means that any fall in a few stocks could affect fund returns.
A decline in interest rate and cooling of inflation would be key factors to look out – for a sustainable rally in this space.
If you are taking exposure to this space, besides having high risk appetite, you might need the discipline to sweep profits off the table, as the sector is known to easily give up on gains once the cycle turns negative.
Disclaimer: Past returns are not indicative of future performance.
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