Financial experts often recommend that investors should invest in funds that nearly capture the complete spectrum of the markets, in other words, well-diversified funds.
One tends to gravitate towards large-cap funds since they optically cover anywhere from ~80-85% of the market capitalization. Although large caps do represent the broader markets/indices, investors should recognize that these funds do not always reflect or capture the opportunities across the spectrum.
The entire spectrum could include opportunities in different market capitalizations, different investment approaches or even the cyclicality in certain segments of the overall markets. This anomaly or rather varied market dynamics gives the fund manager/s the broad field for unique opportunities across the market capitalization spectrum and investment styles at the same time ensuring that the relative portfolio risk is reduced.
UTI Value Fund is one such fund that looks for opportunities that are expressed in terms of the relative intrinsic value of a given stock. This means following a “Value” style of investment across market capitalizations, where “Value” is buying stocks for less than their intrinsic value.
Intrinsic value is simply the current value of the cash flows that the company generates for its shareholders over some time. Undervalued businesses can be found at two ends of the spectrum.
At one end, the market may underappreciate the sustainability of competitive advantages and/or the length of the growth runway for the company. These companies defy the norm of cyclicality and reversion to mean.
At the other end of the spectrum, some companies may be experiencing challenges due to cyclical factors, changes in the environment or their past actions. But if the core business is healthy and a path to a better future (cash flows, return ratios) is visible, then their depressed valuations offer an attractive entry point.
The opportunity in both cases is to buy businesses that are cheaper relative to expectations.UTI Value Fund was launched in the year 2005. The Fund has an AUM of over Rs. 9,600 Crores as of January 31, 2025.
While the portfolio will have a large cap bias, the midcap exposure could vary more widely based on valuation differentials. The Fund has about 67% invested into Large Caps and remaining in Mid & Small caps as on January 31, 2025.
The scheme’s top holding consists of HDFC Bank Ltd., ICICI Bank Ltd., Infosys Ltd., Bharti Airtel Ltd., Kotak Mahindra Bank Ltd., Axis Bank Ltd., Reliance Industries Ltd., State Bank of India Ltd., Tech Mahindra Ltd. and Mahindra and Mahindra Ltd., which accounts for about 43% of the portfolio’s holdings.
