The black gold fund
UTI Petro is a sectoral fund from Unit Trust of India. Launched in June 1999, the fund aims to invest at least 90 per cent of its assets in companies engaged in oil and gas exploration, drilling, refining and petrochemicals. In its two-year stay, the fund has paid a single dividend of 12 per cent.
In a short period, UTI Petro has put up an impressive performance despite a bear grip on the bourses since early 2000. With an annualised return of 27.02 per cent since launch, the numbers are especially inspiring since most UTI equity funds have been sustained under-performers.
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With the petrochemical theme, UTI Petro has built a concentrated portfolio with top 5 stocks accounting for an average 60 per cent of the holdings.
Apart from investments in government controlled refining and distribution majors; the fund has had a penchant for both Reliance Petroleum and Reliance Industries.
Further, aided by a small size, the fund manager has followed a nimble-footed investment strategy with aggressive portfolio churning of the portfolio.
For the year ended June 30, 2000, UTI Petro had a portfolio turnover of 841.53 per cent, which means that the average holding period for a stock is only 43 days!
While investing 90 per cent of the assets in oil companies, UTI Petro has the leeway to invest its remaining assets in other sectors of the economy. The fund has utilised this mandate to primarily buy into technology counters.
In a period otherwise marked by steep losses for equity funds, UTI Petro is a top performer with a one-year return of 30 per cent. By virtue of investments in the capital-intensive petrochemical sector, the fund owns a portfolio of well-capitalised stocks.
Yet, like all sectoral plays, UTI Petro has been a volatile fund since its performance depends on the vagaries of a single sector. Further, with a size of only Rs 22 crore, the fund is yet to acquire a critical mass.
While investors should refrain from making a short-term commitment, the petrochemical sector is a promising investment for the long-term with divestment of public sector oil companies, expected consolidation and dismantling of administered price mechanism. UTI Petro can be considered as an addition to a well-diversified portfolio.