UTI MF Investment Process (Domestic Equity Portfolio)

Transcription

1 UTI MF Investment Process (Domestic Equity Portfolio) MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

2 Presentation Flow Investment Philosophy Team Structure Investment Process Equity Portfolio Portfolio Construction 2 2

3 Investment Philosophy Wealth Creation Alpha- Generation Style Discipline Long Term Orientation 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. 3 3

4 About Our Investment Management Team Vetri Subramaniam Head Equity & Fund Manager Total Work Exp: 26 Years UTI AMC: 1. 5 Years Swati Kulkarni, CFA FM Domestic Equity Total Work Exp: 34 Years With UTI AMC: 26 Years Lalit Nambiar, CFA FM Domestic Equity Total Work Exp: 24 Years With UTI AMC: 11 Years Ajay Tyagi, CFA FM Domestic Equity & Offshore Funds Total Work Exp: 18 Years With UTI AMC: 18 Years V Srivatsa FM Domestic Equity & Offshore Funds Total Work Exp: 18 Years With UTI AMC: 16 Years Sanjay Dongre FM Domestic Equity Total Work Exp: 24 Years With UTI AMC: 24 Years Kaushik Basu FM Domestic Equity Total Work Exp: 34 Years With UTI AMC: 34 Years Rajeev Kumar Gupta FM Domestic Equity Total Work Exp: 36 Years With UTI AMC: 29 Years Sachin Trivedi, CFA FM Domestic Equity & Head of Research Total Work Exp: 17 Years With UTI AMC: 17 Years Tracks Auto, Logistics Amit Premchandani, CFA FM Domestic Equity & Senior Research Analyst Total Work Exp: 13 Years With UTI AMC: 9 Years Tracks Banks, NBFCs, Cement Vishal Chopda, CFA FM Domestic Equity & Research Analyst Total Work Exp: 11 Years With UTI AMC: 8 Years Tracks FMCG, QSR, Retail, Consumer Durable, Telecom Sharwan Goyal, CFA FM Domestic Equity & Portfolio Analyst Total Work Exp: 12 Years With UTI AMC: 12 Years Parag Chavan, CFA Research Analyst Total Work Exp: 8 Years With UTI AMC: 6 Years Tracks Metals & Mining, Utilities, Building Materials, Sugar, Healthcare, Hotels Kamal Gada, CFA FM Overseas Invest. & Research Analyst Total Work Exp: 13 Years With UTI AMC: 10 Years Tracks Energy, Fertilizer, Media, Chemicals, Infra construction Preethi R S Research Analyst Total Work Exp: 6 Years With UTI AMC: 6 Years Tracks Auto Ancillaries, Insurance, HFC & NBFCs Nitin Jain Research Analyst Total Work Exp: 10 Years With UTI AMC: Less than a year Tracks IT & Internet Sector Deepesh Agarwal Research Analyst Total Work Exp: 6 Years With UTI AMC: Less than a year Tracks Capital Goods, Textiles 4

5 Investment Universe & Portfolio Construction INVESTMENT PROCESS LED BY CONVICTION & STYLE CONSISTENCY INVESTMENT UNIVERSE 320 COMPANIES SCREENING THE UNIVERSE UTI PROCESS PORTFOLIO CONSTUCTION INVESTMENT UNIVERSE About 320 companies, spanning large, mid & small market capitalisation Coverage vs Major Indices 97% 99% 87% 96% 82% 95% 71% 75% 90% 57% S&P BSE 100 S&P BSE 200 Nifty LargeMicap 250 Nifty Midcap 150 Nifty 500 % of Cos. Covered % of Market Cap Covered Large Cap Mid Cap Small Cap SCREENING THE UNIVERSE UTI PROCESS Objective Factors Operating Cash Flow Return on Capital/Equity Subjective Factors Management Competence Growth Prospects PORTFOLIO CONSTRUCTION Coverage based on Market cap This is a comprehensive and ongoing feature of Investment process. Based on the Fund Mandate & Internal Prudential investment norms Considerations for Valuations, Sector Weights Market Cap bias & Active Share 95 Market Cap. Rs in bn 3,951 No of Cos. Covered 17, ,454 5 Data as on December 31, 2018

6 Screening the Universe Factors Why it matters? Cash Flow from Operations (CFO) - 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 Return on Capital/ Equity (RoCE / ROE) - 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 6

7 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

8 Methodology Persistency analysis 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 Sectors C1 C2 C3 All companies (excluding Financials) Positive CFO RoCE In 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 > 18% (5 year average) > 10% - 18% (5 year average) < 10% (5 year average) R1 R2 R3 Period of Analysis 22 years (FY 1997 to 2018) Universe of companies analyzed companies (includes MF industry holdings, S&P BSE 500 Index companies since 2002) 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 CFO Cash Flow from Operations NBFCs ROA > 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 RoCE Pre tax RoCE (EBIT/Avg capital employed) 8 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 31 st March, 2018

9 Persistency Analysis Probability of companies migrating across the buckets FY Change in Bucket FY (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

10 Persistency Analysis Probability of companies migrating across the buckets FY Change in Bucket FY (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

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? Cash Flow from Operations (CFO) based performance % 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 C C1 C C1 C C2 C C2 C C2 C C3 C C3 C C3 C 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. 11

12 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 % 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 R R1 R R1 R R2 R R2 R R2 R R3 R R3 R R3 R 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 12 RoA Return on Asset, RoE Return on Equity

13 Movement/distribution of companies among tiers Movement/distribution of companies within CFO 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% Movement/distribution of companies within RoCE tiers 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

14 How is Wealth created? STRATEGIES PROCESS TEAM GROWTH Companies that can self sustain their growth and have the ability to invest at high rates of return VALUE Companies that experience an improving trajectory bought at attractive valuations 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. 14

15 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

16 Portfolio Characteristics- OCF & Return ratio Tiers Scheme Fund Manager AUM Wtd. Avg. CFO ROCE (Rs. In Crs) Mcap C1 C2 C3 R1 R2 R3 UTI Equity Fund Ajay Tyagi 8,583 1,32, UTI MNC Fund Swati Kulkarni 2,147 82, UTI Mastershare Unit Scheme Swati Kulkarni 5,570 2,24, UTI Dividend Yield Fund Swati Kulkarni 2,487 1,46, UTI Value Opportunities Fund UTI Long Term Equity Fund (Tax Saving) Vetri Subramaniam & Amit Premchandani Vetri Subramaniam & Lalit Nambiar 4,374 1,85, ,086 1,32, UTI Core Equity Fund V Srivatsa 899 1,09, UTI Hybrid Equity Fund V Srivatsa 6,007 1,30, UTI Mid Cap Fund Lalit Nambiar 3,783 17, Portfolio as of December 31, Wtd. Avg. Mcap Weighted Average Market Capitalization (Rs. In Crores)

17 Active Management Scheme Fund Manager AUM (Rs. In Crs) Benchmark Active Share (%) UTI Mid Cap Fund Lalit Nambiar 3,783 Nifty Midcap UTI Core Equity Fund V Srivatsa 899 Nifty LargeMidcap UTI Equity Fund Ajay Tyagi 8,583 S&P BSE UTI Long Term Equity Fund (Tax Saving) Vetri Subramaniam & Lalit Nambiar 1,086 S&P BSE UTI Hybrid Equity Fund V Srivatsa 6,007 S&P BSE UTI Value Opportunities Fund Vetri Subramaniam & Amit Premchandani 4,374 S&P BSE UTI MNC Fund Swati Kulkarni 2,147 Nifty MNC UTI Dividend Yield Fund Swati Kulkarni 2,487 Nifty Dividend Opp UTI Mastershare Unit Scheme Swati Kulkarni 5,570 S&P BSE Data as on December 31, 2018

18 Diverse Strategies Style Discipline UTI Mastershare Unit Scheme UTI Equity Fund UTI Value Opportunities Fund Price to Book Price to Earnings Return on Equity Market Capitalisation (` In Crores) , , , , , ,570 UTI Core Equity Fund UTI LTEF (Tax Saving) UTI Hybrid Equity Fund Price to Book Price to Earnings Return on Equity Market Capitalisation (` In Crores) , , , , , , PE and PB is based on Trailing (TTM), Data as on December 31, 2018 Fund Benchmark

19 Diverse Strategies Style Discipline UTI Mid Cap Fund UTI Dividend Yield Fund UTI MNC Fund Price to Book Price to Earnings Return on Equity Market Capitalisation (` In Crores) ,565 17, , , ,488 82, Fund Benchmark 19 PE and PB is based on Trailing (TTM), Data as on December 31, 2018

20 UTI Holdings, UTI Universe and S&P BSE 500 Index Positioning CFO UTI Holdings Rs bn UTI Holdings UTI Universe S&P BSE 500 Index No. of Cos % of AUM % of Cos Market cap Rs bn No. of Cos % of Mcap % of Cos Market cap Rs bn No. of Cos % of Mcap C % 79% 81, % 80% 86, % 75% C % 11% 5, % 12% 7, % 16% C % 3% 3, % 4% 3, % 5% IPOs/NA % 6% 2, % 4% 2, % 4% % of Cos Total % 100% 91, % 100% 1,01, % 100% ROCE UTI Holdings Rs bn UTI Holdings UTI Universe S&P BSE 500 Index No. of Cos % of AUM % of Cos Market cap Rs bn No. of Cos % of Mcap % of Cos Market cap Rs bn No. of Cos % of Mcap % of Cos R % 46% 73, % 46% 77, % 45% R % 33% 31, % 31% 33, % 27% R % 15% 13, % 17% 17, % 24% IPOs/NA % 7% 5, % 6% 6, % 5% Total % 100% 1,23, % 100% 1,35, % 100% 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 20 Data as on December 31, 2018

21 UTI Aggregate vs MF Industry 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% Aggregated based on Equity and Hybrid Funds 21 Data as on December 31, 2018

22 Thank You The 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 Phone: UTI Asset Management Company Ltd (Investment Manager for UTI Mutual Fund) invest@uti.co.in. (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 to any unavailability of the document or any part thereof or any contents or associated services. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.