Overexposure to large caps drags performance

FUND ANALYSIS/ UTI Auto

The fund, like JM Auto, came into existence in the second quarter of 2004, but its performance as compared to its only peer has not been that robust. The fund gave an annualised return of around 34.20 per cent since its launch.

The fund maintained a mid-cap orientation for a long time only to tilt towards the large caps in April 2006. The fund managed a return of only 11.92 per cent in 2006, down from an impressive 42.49 per cent generated during 2005.

As the frontline companies failed to bounce back after the May 2006 fall, the fund's preference for large-cap companies, which formed 30 per cent of its portfolio in the beginning of 2006 and 71.41 per cent by the end of the year, seem to have dragged its performance.

Apart from the April-June 2006 quarter, October-December quarter also proved to be a disaster bringing in a meagre 2 per cent return. The fund has trimmed the number of scrips in its portfolio to 18 from a high of 31 in March 2005. Its top holdings include M&M (19.82 per cent), Tata Motors (18 per cent), Bajaj Auto (17.72 per cent) and Maruti Udyog (10.40 per cent).

Usually, stocks of a particular sector move in tandem. Therefore, a sector fund's fortunes depend more on the performance of the sector as a whole, rather than the capabilities of its fund management team. Unfortunately for auto funds, the sector did not perform that well in 2006.

But all is not over, and this fund may witness a revival as and when the auto sector companies accelerate on the stock markets.