Establishing realistic financial goals is the first step toward successful investing. Understanding the investment avenues best suited to helping you achieve your goals is equally important. Mutual funds can fit well into either your long or short-term investment goal, but the success of one’s plan depends on the type of fund/s one choose. Having said that, UTI Equity Fund is an open ended equity scheme investing across large cap, mid cap, small cap stocks, having a corpus of Rs.7,896 crores and trusted by over 11.42 lakh investors (as on June 30, 2018). This offering from UTI Mutual Fund is one such fund that any long term investor should be looking for their core equity allocation.
What makes UTI Equity Fund to stand out is the fund’s strong investment philosophy that invests in companies which are primarily driven three tenets Vis., Quality, Growth & Valuation. The portfolio strategy would be to focus on high quality businesses that have an ability to show strong growth for a long period of time and are run by seasoned managements.
“Quality” signifies the ability of a business to sustain high Return on capital employed (RoCE) or Return on Equity (RoE) over a long period of time. Truly high quality businesses are those that are able to generate high RoCEs and also RoEs even during difficult times for their industry or sector and therefore operate above their cost of capital at all times. More often than not, a business with high RoCE/ RoE shall be able to generate strong cash-flows and therefore generate economic value.
“Growth” on the other hand signifies long term secular growth for the business. Emphasis on businesses that have steady and predictable growth trajectory rather than cyclical and unpredictable growth. Cyclical growth or degrowth can be very sharp and unpredictable and can surprise investors in either direction, as against preference for more predictable growth where there is relatively more certainty in understanding the long term drivers of growth and its future outcomes. While high quality businesses create economic value, a high growth business enables compounding of this economic value. It is for this reason fund’s favorite hunting ground for stock selection is the intersection of quality and growth.
Last but not the least, fund emphasis on buying stocks that comes with ideal “Valuation”. Value in a stock can be derived from considering the value of cash-flows that the business generates over its life time and discounting them back to the present date. The businesses that generates more cash than what they consume i.e., Free cash flow becomes the source of economic value and ultimately wealth creation for its shareholders. The Fund believes by focusing on cashflows builds in a margin of safety in picking winners and multibaggers.
The Fund would invest across the market capitalization spectrum following the “Growth” style of investment. UTI Equity Fund would be suitable for those equity investors looking to build their “core” equity portfolio and seeking long term capital growth through investment in quality businesses that generate economic value.