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Pioneering Positives

Investors will find UTI Infrastructure's returns steady and sound

Besides being its initiator, this fund has more than proved the merit of the infrastructure theme. It got off to an impressive start by beating its only other peer, DSP BlackRock T.I.G.E.R., in 2005 and in 2006 was the best performer in the entire universe of equity funds.

In 2007, it was the fund manager's ability to deliver but remain grounded that stood out. Though the market was on a roll and its peers bet on mid- and small-caps, this fund saw its large-cap exposure gradually rise over the year. “As fund managers we all have boundaries which are laid down to manage a fund. We have always held that in this fund we would maintain a large-cap exposure of around 60 per cent to maintain stability, and by and large, we stick by it,” says fund manager Sanjay Dongre. Simultaneously, allocation to construction dropped from 21 per cent to 15 per cent, despite this sector rallying. His exposure to metals hovered below the category average. The trade-off? It had to let go of its prime spot (category returns: 82.83%), but still managed to deliver a return of 72 per cent that year.

In the downturn that immediately followed, the fund began to reduce its equity allocation pretty much in line with its peers. But it was from June 2008 that its exposure to debt and cash began to get really aggressive.

By December 2008, equity allocation stood at 63 per cent (category average: 73%). “Infrastructure stocks are high beta stocks and in the slowdown they took a beating. So we moved into cash levels of 25 to 30 per cent,” explains Dongre.

No one emerged unscathed out of 2008 and this one shed 56.32 per cent, a lot less than many other funds and a little less than the category average of -60 per cent (2008).

This year, his call on cash has resulted in mixed results. In the first quarter of 2009, its equity allocation hovered around 61 per cent, way below the category average. This move paid off and resulted in the fund shedding a mere 0.93 per cent in the first quarter of 2009 (category average: -5.32%). But then the market began to rally and hit the fund whose equity exposure for April 2009 stood at just 67 per cent (category average: 85.56%). Consequently, though the category delivered 81.74 per cent (March 9 - May 31, 2009), the fund returned a much lower 60 per cent.

Dongre admits that to the extent he carried cash he missed out. On the flip side, had he stayed fully invested from the start of the year, his fund would have taken a much bigger beating earlier. As on May 2009, his equity exposure stood at 82 per cent.

The fund manager typically adheres to a buy-and-hold strategy with his favourite picks being BHEL, RIL, L&T and Bharti Airtel. “Infrastructure is not about value picks. Because it is a growth story we buy stocks with a time horizon of 2-3 years,” says Dongre. Individual stock holdings have never crossed 7 per cent, barring Reliance Industries Ltd.

Dongre, who has managed the fund since inception, is not one who takes undue advantage of what the market is giving him. His aim is to stay loyal to the theme. Consequently, this fund is pretty much as close as you can get to a pure infrastructure play. So sectors such as Infotech, Pharma, Auto, FMCG, Textiles or Banking will remain absent (IDFC appeared under the Financial Services sector as it is into infrastructure financing). In Dongre's own words, they “never fell for the temptation of making a buy in an unrelated sector and then attempt to justify that stand or broaden the objective to include it.”

This fund has loyally delivered what it set out to do.