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At Long Last

After a decade of waiting, the PSU idea is finally beginning to pay-off for UTI Mastergrowth.

After a decade of waiting, the PSU idea is finally beginning to pay-off for UTI Mastergrowth. When the fund was launched (as a closed-end offering) in 1993, this must have looked like a bright idea. At that time, the erstwhile UTI had easily struck gold in its other equity funds like Mastershare, Masterplus and Mastergain. It turned open-end in December 1999.

Despite being around for many years, the fund's long-term returns are not that inspiring. Its recent performance, however, does draw attention. After a decade of waiting, the PSU idea is finally beginning to pay-off for UTI Master Growth as the PSU stocks have been re-rated by the markets in past few years. The fund gained a handsome 20 per cent in 2002 and another 26 per cent in 2003 till August 2, 2003.

The fund had a blistering start in March 1993, as it was up by more than 100 per cent before its first anniversary. But in the years that followed this bright beginning, the PSU story just did not unfold and Mastergrowth refused to grow. It slipped from second quartile to the bottom of the heap. The reorientation of the portfolio towards non-PSU stocks has seen it regain its second quartile position.

UTI Master Growth's PSU hypothesis worked very well initially. Till 1998, nearly half its portfolio was made up of PSUs stocks like HPCL, BPCL, BHEL and MTNL. However, by 1999, Mastergrowth almost gave up on PSUs, reducing its stake to around 20-23 per cent. This proved to be a boon as the moderate positions it took up in technology boosted its performance during the 1999 rally.

However, the bear market since the tech wreck, favourable weather for value stocks and symptoms of changing times for PSU stocks reminded Mastergrowth of its mandate. Since 2001, the fund has gradually strengthened in PSU holdings—rising from 23 per cent in December 2001 to 40 per cent, now. SBI, Indian Oil, HPCL are among its top holdings now.

However Mastergrowth was so focused on the disinvestment bets in the PSU universe that it missed out on the non-disinvestment PSU opportunities such as the rally in PSU bank stocks. Besides, unlike other funds, which have actively pursued mid-cap stocks, this fund has mostly maintained a large-cap bias.

While the non-PSU part of its portfolio certainly affords it the opportunity to hedge its bets, political events will also have a significant bearing on this fund's future. As the disinvestment pendulum swings back and forth, so will the fund's fortunes.