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Towering performance from UTI Services

It has indeed been a towering performance by UTI Services Sector Fund. The only fund with a triple d

It has indeed been a towering performance by UTI Services Sector Fund. The only fund with a triple digit return for the one-year ended November 30, UTI Services Sector stands tall amidst the ravaged net asset values of equity funds. With a one-year return of 131.48 per cent, the fund's closest yet distant competitor is Kothari Pioneer Taxshield, which has gained only 47 per cent in the same period. So, what has been the investment strategy of a fund, which invests in stocks drawn from industries such as banking and finance, travel, transportation, utility services providers and entertainment.

Like all other equity funds, UTI Services Sector primarily invests in fundamentally sound companies. "We have been looking at those companies, which have quality management and high growth rates,'' says V Suresh, fund manager, UTI Services Sector. Yet, what sets the fund apart from its peers is the aggressive management by the fund manager. "Given the small size of the fund (around Rs 60 crore), active portfolio churning and without any impact on the prices has been easy for us. Trading has definitely helped us log good returns,'' adds Suresh. That the fund is "actively" managed is a euphemism, given the portfolio turnover of 1110.9 per cent as on June 30, 2000! The turnover means that the fund is as good as an active day trader, with the average life of a portfolio a little over one-month.

"The fund does invest with a long-term objective but if an opportunity (to book profits) comes, we utilise it,'' says Suresh. Surely, given the astronomical portfolio turnover, there is no dearth of opportunities for this fund even in a bearish market. While the fund has largely stuck to its basket of stocks since its launch in June 1999, it has actively moved in and out of these holdings.

"Though we have been overweight on technology, our exposure to finance companies like HDFC Bank and ICICI Bank has also helped us. Some of my favourite stocks have been Infosys and Apollo Hospitals," reveals Suresh. Apollo Hospitals has been a good bet for the fund and has appreciated from around Rs 60 levels in July last year to over Rs 200. In fact, the scrip had touched a high of around Rs 515 earlier this year. While the fund has actively traded its investments in Infosys, the current average acquisition price for the stock is Rs 7300. The scrip ended the day on Thursday at Rs 7276. "Apart from active trading, we were fortunate with the timing of the launch in June 1999, when new economy stocks were trading at very attractive levels. Thus, we were able to lock at decent valuations,'' states Suresh.

On his outlook for the markets, Suresh expects disinvestment to unlock substantial value and prop up the markets. The fund has currently two PSU telecom service providers of VSNL and MTNL in its portfolio. As on October 31, the two holdings accounted for 11.55% of the portfolio. "That apart, IT and telecom sector stocks should continue to do well especially optical fibres,'' he says.

UTI Services Sector has already paid a dividend of 20% in March this year and according to the fund manager, the fund is likely to declare another dividend this month that will also help it garner fresh inflows. The fund has a current NAV of Rs 27.34, which translates into a return since launch of 107.83%. However, the fund has lost nearly 39% from its peak of Rs 47 in March this year.

While an aggressive buy and sell strategy has helped Services Sector largely guard assets in a bearish market, the fund manager needs to be constantly vigilant, lest the active churning boomerangs on the fund. That apart, a growing corpus could bring down the portfolio turnover. A higher portfolio turnover also means higher transaction costs, which are not reflected in the annual expenses of the fund. "While we will continue to pick up long-term performers, we will also book profits when an opportunity comes,'' reiterates Suresh with a tinge of aggression.

UTI Services Sector
  Top Ten Holdings (31/10/2000)  % weight
  N I I T 11.78
  Infosys Technologies 11.01
  S S I 8.44
  Mahanagar Telephone Nigam 8.18
  Global Tele-Systems 7.81
  Himachal Futuristic Communications 7.73
  Apollo Hospitals Enterprise 7.44
  Zee Telefilms 7.09
  Satyam Computer Services 6.46
  I C I C I 4.49