When stock market tanked, two funds shot to the limelight—UTI Dividend Yield and Birla Sun Life Dividend Yield Plus. The funds not only managed the market turbulence better than their peers but also outperformed other diversified equity funds.
During the last bull run (June 15, 2006 — January 8, 2008), UTI Dividend Yield posted an absolute return of 73 per cent. As a result, it became the top performer in this category, and even outclassed equity diversified funds. On the other hand, in the fall that immediately followed, its decline has been the least amongst its peers. This fund has put to rest the notion that dividend yield funds shine only in market downturn.
The situation slightly differs with Birla Sun Life Dividend Yield Plus. During the bull ride, the fund delivered 57.11 per cent, which was below the category average. But in the bear phase that followed, the fund has put its best foot forward.
FUND MANAGERS
Swati Kulkarni, the fund manager of UTI Dividend Yield, has stood out as an exceptional fund manager in this category. She has consistently outperformed her peers in all market phases. And it’s not just sheer luck. Her agility combined with a conviction to ride her bets has held her in good stead. Unfortunately, the Birla fund has suffered from lack of consistency at the helm. A continuous change in fund managers naturally gets reflected in the investment strategy. But most of the aggressive calls have been taken with lot of caution.
SECTOR CALLS
In 2007 both fund managers began to focus on increasing their energy sector allocation. By the end of the year, it was the sector with the highest allocation in both funds. And it turned out to be a smart move as energy stocks ruled the markets that year. BSE Power delivered 122 per cent while BSE Oil & Gas delivered 115 per cent that year.
UTI Dividend Yield is a more aggressive offering. And when the fund manager sees opportunity, she has no apprehensions about moving in, staking a big claim and even making a rapid exit.
Her move into metal stocks in 2007 is a case in point where the allocation moved from 3.85 per cent (August 2007) to 12.31 per cent (December 2007). Way back in 2005, the ‘diversified’ allocation dropped from 6.40 per cent to 4.74 per cent and again shot up to 11.42 per cent within a month.
INDIVIDUAL STOCKS
The aggression is not only apparent in sector calls but also in individual stock bets. UTI Dividend Yield actively takes the leeway to invest in stocks other than mandated. In 2007, the fund was into high PE (price-to-earnings ratio) stocks. The average PE of UTI Dividend Yield (25.04) was highest amongst the category of dividend yielding funds. In the case of Birla Sun Life Dividend Yield Plus, the average PE of the fund’s portfolio was 14.61.
Of course once the market crashed, true to her style, Kulkarni brazenly increased the cash allocation only to drastically cut it short in September 2008 with a simultaneous move into debt.
DICERSIFICATION
Despite the aggressive posture taken by UTI Dividend Yield, the fund droops towards large caps while Birla Sun Life Dividend Yield scouts for value in mid-and small-cap stocks. Birla Sun Life Dividend Yield did take higher individual stock bets earlier but with the change in fund managers, that too has changed.
While both the funds are topping the performance charts, it’s obvious they pursue their seemingly common objective in a starkly diverse fashion. Pick a fund whose style goes will with your investment approach.
