- 10 views
After a spell of strong returns for over three to four years, the equity market has been in correction mode in the last five months.
UTI’s value philosophy follows a disciplined approach by looking for quality stocks at reasonable valuations irrespective of the market cycle. The strategy attempts to insulate itself from value traps by avoiding cheap companies that may look attractive on valuations but may suffer from low RoCEs, poor profit margins or governance-related issues.
This disciplined approach ensures that the Fund stays resilient across market cycles. To explore more, read our blog “The art of value investing: Opportunities across cycles” to get a deep dive into ‘value investing’. This ‘value investing’ approach has driven UTI Large & Mid Cap Fund’s portfolio performance during the upcycle of the market as well as in the ongoing downcycle.
The Fund’s value philosophy focuses on valuation irrespective of changing
market seasons and emphasizes on building a portfolio that has a significant discount over the benchmark across the market cycle. We believe such ideas could benefit from upside potential once the mean reversion plays out.
The table placed below outlines how the Fund remains disciplined and stays true to its value philosophy even in volatile markets (Nifty LargeMidcap 250 TRI had peaked in Sep-24 with 22% gain from Mar-24 and subsequently plunged by 18% by Feb-25 from the peak i.e. Sep-24).
Source: UTI MF Research. Portfolio characteristics are calculated based on full market cap using weighted harmonic mean methodology at aggregation.
As seen above, the UTI Large & Mid Cap Fund’s valuation discount to the benchmark across the market cycle i.e. upcycle (before Sep-24) and downcycle (Sep-24 onwards) — remains consistent on both P/E and P/B basis. Similarly, the Fund’s discipline to focus on valuation discounts across the market cap spectrum was very well maintained. Particularly when the valuation in the SMID segment continued to be stretched and expensive over the last year, the Fund continued to focus on stocks with good quality in terms of their RoCE (Return on Capital Employed) and OCF (Operating Cash Flow) profiles.
In the below table, the Fund’s valuation across the market caps and its discount/premium to the market cap-based indices indicates its focus on valuation despite a sharp valuation swing, which was particularly visible in the SMID space.
Source: UTI MF Research. The Fund holdings are the exposure of UTI Large & Mid Cap Fund across the respective market capitalisation rebased to 100. Portfolio characteristics are calculated based on full market cap using weighted harmonic mean methodology at aggregation.
While the Fund is cognizant of portfolio valuation across market cycles and market cap spectrum, it has an optimal mix of well-run cyclical companies, turnaround opportunities and growth-oriented small cap companies trading below mean valuations. We endeavour to rigorously look for potential opportunities from the lens of both quality of business and relative valuation.
The Fund has also remained quality conscious across the market cycle on both RoCE and OCF basis. While the Fund has remained biased toward R1 and C1 companies across the periods, it has marginally increased its exposure to both R1 and C1 companies in the recent past on account of increased volatility.
Source: UTI MF Research. Operating Cash Flow Tiers (OCF)- 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 companies & non-lending NBFCs) & based on the previous 5-year average return on asset for banks & NBFCs (including HFCs).
Furthermore, the Fund aims to mitigate the portfolio risks by its prudent position sizing and portfolio concentration. The Fund’s portfolio allocation has been consistent across market cycles and its conviction, which is represented through its high active share, has also been maintained across the time periods. By managing volatility, the Fund remains well-positioned to deliver sustainable risk-adjusted returns.
Source: UTI MF Research. Active share – Percentage of Fund’s exposure which is distinct as compared to the benchmark index (Nifty LargeMidcap 250 Index).
We believe this disciplined approach to value investing ensures that the Fund remain resilient, navigate the market cycles and deliver superior risk-adjusted returns over the medium to long term. Investors looking to build their core equity allocation and an optimal risk-adjusted portfolio may find this Fund a compelling choice for achieving their financial goals.
Product Label
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.#Risk-o-meter for the fund is based on the portfolio ending February 28, 2025. The Risk-o-meter of the fund/s is/are evaluated on monthly basis and any changes to Risk-o-meter are disclosed vide addendum on monthly basis, to view the latest addendum on Risk-o-meter, please visit addenda section on https://www.utimf.com/downloads/addenda-financial-year
The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instrument.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
