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Fund Focus: UTI Balanced

While overall equity allocation is kept under check, the fund invests heavily in mid- & small-caps

Cautious Escapades
A relatively conservative asset allocation has made this fund a laggard in recent times. All through the equity rally of the past three years, the fund's allocation to stocks has seldom gone beyond 61 per cent. In the recent months, it has turned even more conservative by reducing equity exposure to 55 per cent. This reflects that the fund actively re-balances portfolio to move assets in safer debt instruments with the rise of stock markets. Therefore, this is definitely not the fund for those looking for flamboyant returns.

The fund has failed to beat an average peer in each of the last three calendar years. 2005 was harsh when the fund landed in the bottom quartile. And a recent fund manager change makes things more uncertain. But a positive aspect is lower volatility, which gets reflected in low standard deviation. In the past as well, the fund has proved that it can handle tough situations. For instance, in 2000, when the markets were bearish, the fund delivered 26 per cent return against the category's average negative return of 13 per cent. It managed the technology downfall of 2000-01 quite well by shifting into debt.

Till 2002, things were favourable for the fund as the debt markets were doing well. However, there have been dramatic changes after that, forcing the fund to be more aggressive. Since mid 2003, allocation to mid- and small-caps has always remained more than 50 per cent of the equity allocation. The typical characteristic of this fund is that while the overall equity allocation is kept under check, within equities, the fund has been investing aggressively in mid- and small-caps. But despite sizing up allocation to mid- and small-cap stocks, the fund has not kept pace with peers. On the debt part, some big interest rate calls seem to have played a role in the fund's under performance in recent years. As far as the credit quality is concerned, high-rated corporate bonds form the core of the portfolio.

To sum it up, the fund has found the going tough in the last few years. Investors will have to keep a close watch and gauge how the new manager takes things forward.