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A Divergent Approach

Despite different approaches, both UTI Dividend Yield & Birla Sun Life Dividend Yield Plus are standing upright

UTI Dividend Yield and Birla Sun Life Dividend Yield Plus shot to the limelight in recent times simply because they have managed the market turbulence better than their dividend yield peers. Or, for that matter, even better than other diversified equity funds.

But it would be wrong to infer that these funds are simply bear market bellwethers.

During the recently concluded bull run (June 15, 2006 - January 8, 2008), UTI Dividend Yield posted an absolute return of 73 per cent, putting it ahead of its peers and even above the average return of the equity diversified category. In the fall that immediately followed, its decline has been the least amongst its peers. This fund has put to rest the notion that dividend yield funds shine only in market downturns.

  Birla Sun Life Div. Yield +  UTI Div. Yield
Category Equity Diversified Dividend Yield Funds  Equity Diversified Dividend Yield Funds
Type Open ended Open ended
Inception Feb '03 May '05
Benchmark S&P CNX 500 BSE 100
Rating *** ****
Expense Ratio (Sep '08) 2.35% 2.08%
Fund Manager Ankit Sancheti  Swati Kulkarni
 (since Nov '07) (since Dec '05)
Assets (Jan 31, '09) Rs 187.16 crore Rs 877.57 crore
Allocation to high DY stocks 65 - 100% 65 - 100%
Definition of high DY Twice the DY of the Sensex Greater than DY of Nifty
Stated Allocation Equity: 90 - 100%, Debt: 0 - 10% Equity: 90 - 100%, Debt: 0 - 10%
DY - Dividend Yield

The situation differs slightly with Birla Sun Life Dividend Yield Plus. During the bull ride, the fund delivered 57.11 per cent, which was below the category average. It's in the bear phase that followed that the fund has been putting its best foot forward.

Swati Kulkarni, the fund manager of UTI Dividend Yield, has stood out as an exceptional fund manager in the dividend yield category. She has consistently outperformed her peers in all market phases. And it's not just sheer luck. Her agility combined with a conviction to ride her bets has held her in good stead. Unfortunately, the Birla fund has suffered from lack of consistency at the helm. A continuous change in fund managers naturally gets reflected in the investment strategy. But by and large, it is a fund that prefers to err on the side of caution.

How they stack up
      % Return (Rank)    
Calendar Year  2008  2007  2006  2005  2004
Birla Sun Life Div. Yield Plus -44.44 (2/6) 56.87 (5/6) 10.46 (3/6) 30.53 (3/3) 29.06 (1/1)
UTI Dividend Yield -44.44 (1/6) 70.56 (2/6) 20.65 (1/6)  

These inherent characteristics of the funds get reflected in a number of parameters. The most prominent being actual sector calls. In 2007, for instance, both fund managers began to focus on increasing their energy sector allocation. By the end of the year, it was the sector with the highest allocation in both funds. Smart moves indeed since energy stocks ruled that year. BSE Power delivered 122 per cent while BSE Oil & Gas delivered 115 per cent that year. But the sector touched a high in the Birla fund at 21.80 per cent while it cornered 31.47 per cent of UTI Dividend Yield's assets at one time.

Common Holdings
  Birla Sun Life Div. Yield Plus (%)  UTI Dividend Yield (%)
Bank Of Baroda 2.49 1.06
Clariant Chemicals 1.47 0.96
Colgate-Palmolive 2.99 0.34
Glaxosmithkline Pharmaceuticals 4.62 1.69
Great Eastern Shipping 1.13 1.75
Gujarat Industries Power 0.45 0.87
Hindustan Unilever  1.95 2.80
Indian Oil Corpn.  3.63 4.36
Oil & Natural Gas Corpn. 5.62 4.33
Power Finance Corpn. 0.50 1.14
Procter & Gamble Hygiene & Health Care 1.67 1.27
Tata Chemicals 3.01 1.83
Tata Steel 0.45 0.07
Union Bank of India 2.67 1.98
As on January 31, 2009

But investors of Birla Sun Life Dividend Yield should not be surprised. The fund tends to play it safe and its allocation to a single sector rarely exceeds 20 per cent. Moreover, it tends to tilt towards more consensus sectors. Relatively speaking, the fund has always shown a greater preference for healthcare and FMCG stocks.

UTI Dividend Yield is a more aggressive offering. And when the fund manager sees opportunity, she has no apprehensions about moving in, staking a big claim and even making a rapid exit should the need arise. Her move into metal stocks in 2007 is a case in point where the allocation moved from 3.85 per cent (August 2007) to 12.31 per cent (December 2007). Way back in 2005, the 'diversified' allocation dropped from 6.40 per cent to 4.74 per cent within a month to shoot up to 11.42 per cent the very next month.

The aggression is not only apparent in sector calls but also in individual stock bets. UTI Dividend Yield actively utilises the leeway to invest in other than high dividend yielding stocks. In 2007, the fund was into high PE (price-to-earnings ratio) stocks and the average PE of UTI Dividend Yield (25.04) was highest amongst the category of dividend yielding funds. In the case of Birla Sun Life Dividend Yield Plus, the average PE of the fund's portfolio was 14.61.

Of course once the market crashed, true to her style, Kulkarni brazenly increased the cash allocation only to drastically cut it short in September 2008 with a simultaneous move into debt.

On the diversification angle, UTI Dividend Yield tends to be more concentrated. But a more diversified tilt holds well for Birla Sun Life Dividend Yield Plus if one takes into account its market cap tilt. Despite the aggressive posture taken by UTI Dividend Yield, the fund tilts towards large caps while Birla Sun Life Dividend Yield scouts for value in mid- and small-cap stocks. Birla Sun Life Dividend Yield did take higher individual stock bets earlier but with the change in fund managers, that too has changed.

While both the funds are topping the performance charts, it's obvious they pursue their seemingly common objective in a starkly diverse fashion. Pick a fund whose style goes will with your investment approach.