UTI Core Equity Fund is a large and mid cap fund where it offers a diversified investment portfolio. According to the SEBI categorization of mutual funds, large and mid cap funds invest a minimum of 35% each in the equity and equity related instruments of large cap and mid cap companies. The Fund intends to invest in sound companies which provide margin of safety by trading cheaper, relative to their history or peers. The Fund aims to provide stability with a biasness towards large cap companies and offers higher growth in the portfolio through investment in mid and small cap companies. Value Investing is a strategy that involves picking stocks which are trading at less than their intrinsic value. Markets often over react to short-term news flow or sentiments which gives the opportunity to the value investor to buy a stock below its intrinsic value. Buying below the intrinsic value provides margin of safety, that is the distinguishing feature of value investing. By purchasing a stock at lower valuations, the value investor increases the odds of making money or losing less money if the business does not perform as expected or takes longer to perform. Value investors emphasize on margin of safety over growth and embrace cyclicality and the potential for mean reversion in business fundamentals and valuation. The value investor makes money when the stock trades at intrinsic value – capturing the potential for improvement in business fundamentals and valuations.
The Fund follows a top down approach to pick sectors which are available at below mean valuations with reasonable prospects. It follows a bottom up approach to pick sound businesses with reasonable relative valuation, a healthy past track record and potential for future growth are considered. The core belief of the Fund is that a company goes through its own valuation cycle which may vary on account of either macro cycles or company specific factors, and its aim is to capture the inefficiency in the cycle. It would also look towards growth oriented companies if the valuations are in the comfort zone.
The investment strategy of the Fund is built around three tenets: relative valuation versus history or peer, growth opportunities at reasonable valuations and mean reversion. The Fund focuses on quality companies whose relative valuation are below their historical valuation or valuation of their peers, providing margin of safety. The Fund also looks at growth oriented stocks which are trading at reasonable valuations. In this regard, small caps can offer the combination of growth and value as they are not well discovered by the market and good quality companies could be available at reasonable valuations. The strategy also endeavours to pick businesses that are undervalued and benefit from mean reversion in profitability and valuation as the cycles play out.
