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UTI Dividend Yield Fund combines equity exposure with relative downside protection

UTI Dividend Yield Fund, the Rs 2,998-crore diversified equity fund investing in high-dividend-yielding stocks, is designed for those investors looking to increase their equity allocation with relative downside protection.

An analysis of the UTI Dividend Yield Fund’s performance over two distinct time zones – the Bull period during January-December 2007 and the Bear period during January-December 2008 – reveals an interesting trend. During the Bull period, returns calculated based on the Fund’s NAV show one-year returns at 70.56% vis-à-vis 59.74% by the benchmark BSE-100 index. But that’s only half of the story. The real revelation comes when returns during the Bear period are analysed. During this period, the Fund shows a negative return of 44.44% against 55.28% by the BSE-100.

The UTI Dividend Yield Fund has outperformed its benchmark BSE-100 index consistently over the years. Returns calculated based on the Fund’s NAV show one-year returns at 39.60% vis-à-vis 27.68% of the BSE index, while corresponding three-year and five-year returns are at 12.54% (0.79% for the BSE-100 index) and 25.40% (20.65% for BSE-100), respectively.

The Fund’s investment manager Swati Kulkarni portfolio management strategy works on primarily four principles: Diversification across sectors and market capitalization, Bottom-up approach, Focus on the stock’s fundamentals, and Growth at reasonable pace. Towards this, her team tends to select high-dividend-yielding stocks which usually have a strong cash generation track-record. Some of these trends tend to indicate undervaluation of a stock. Her philosophy is to capture potential capital appreciation in reviving markets, while limiting the downside in falling markets.

Importantly, UTI Dividend Yield Fund offers investors the twin benefits of capital appreciation and dividend yield. As illustrated earlier, the Fund is well-known for its consistent performance across market cycles and has a good dividend track record; it has declared 14 dividends since inception.

The UTI Dividend Yield Fund is popular among equity investors, who look for investing in portfolio of large and medium sized companies having strong cash flow and sustainable payouts.

The top five stocks in the Fund’s portfolio in terms of percentage of assets invested are Infosys Technologies (7.16%), ICICI Bank (4.99%), Tata Consultancy Services (4.54%), ITC (4.02%) and NTPC (3.95%).

In terms of sectoral allocations, 19% of investments are in energy stocks & financial services stocks each which include NTPC, GAIL, Petronet ICICI Bank, HDFC, SBI, and Bank of Baroda. 12% of investments are in IT sector, one of the most-favourable sectors. Among other sectors, a sizeable 8% of Fund’s portfolio is in cement & consumer goods each. 

According to UTI Mutual Fund’s own analysis, a lump sum investment of Rs 1 lakh made at the time of the Fund’s launch in May 2005 would have translated to a whopping amount of Rs 3,28,600 today. A similar investment in the BSE-100 stocks would have netted a tad lower amount of Rs 3,01,777.

Little wonder that the UTI Dividend Yield Fund was among the only two mutual fund schemes out of total 66 schemes that won the CNBC TV18-Crisil Mutual Fund of the Year award in the Equity Diversified Funds category. The Fund has been rated 5 star by Value Research & Morning Star and has also won the Best Large Cap fund award by Morningstar.