UTI Brand Value Fund: Hold

Recommendation: Hold

Aarati Krishnan

BARRING a few exceptions, consumer product companies reported healthy financial performance in the quarter ended September 2000.

Since such companies make up the largest proportion of the UTI Brand Value Fund, investors in the fund could hold their investments in the expectation of a recovery in valuations and thus in the fund's NAV.

However, apart from consumer product companies, the UTI Brand Value Fund also has investments in software, media and telecom companies and a few diversified companies. Given the fund's diffused sectoral focus, it may not be the right vehicle to track the prospects of any particular sector.

Suitability: The fund is a suitable investment for investors willing to take average equity risks. Had the portfolio been restricted to consumer product companies, the fund would have been a reasonable defensive investment vehicle.

But the presence of a few more volatile software/media stocks such as Satyam Computers, Sri Adhikari Brothers and Zee Telefilms could dilute this benefit. However, the redeeming feature at this juncture is that even the above stocks have been beaten down to fairly low valuations. The downside on the NAV from this level, therefore, appears limited.

Performance: Launched at a time when valuations for companies making up its investment universe were high, the UTI Brand Value Fund suffered value erosion of around 19 per cent since its inception in September 1999.

On a point-to-point basis, the fund's performance compares favourably to the BL Consumer Confidence Index, which 7suffered a decline of 28 per cent over the same period. However, the fund has not been able to take advantage of the brief surges of interest in the consumer goods stocks in August 1999 and in July 2000. This is probably because of the underperformance of the software/media/telecom stocks in the portfolio at these times.

Click here for Chart

Portfolio: Though diffused in its sectoral focus, the fund has largely stuck to the central theme of investing in companies with strong brand equity. Even the non-FMCG companies in the portfolio boast of fairly strong brands -- NIIT, Aptech, Gramophone Company, and Zee Telefilms, to name a few. The fund's initial portfolio in June 1999 was heavily weighted in just three stocks -- Hindustan Lever, Nestle and Bata India, which accounted for 63 per cent of net assets.

The fund was, therefore, highly vulnerable to the fortunes of these companies. However, the degree of concentration has come down since. By September 2000, the top ten holdings accounted for 61.5 per cent of net assets.

By September, 73 per cent of the fund's net assets were invested in FMCG companies. The balance was invested mainly in software/media/telecom companies, such as Zee Telefilms, Satyam Computers, NIIT, SSI and VSNL. HDFC Bank and EIH were the exposures outside of these sectors.

In the past six months, the fund reduced exposures to software/media/telecom stocks and enhanced exposure to FMCG stocks. Stocks such as TV-18, Global Telesystems, Cinevista Communications and MTNL exited the portfolio during this period, while Nestle, and Vikas WSP were added.

Fund facts: The UTI Brand Value Fund was launched in September 1999. An open-end fund, it repurchases units at a 2 per cent discount to the NAV for investments made after the initial offer period. Original investors can redeem units at NAV, which now stands at Rs 8.09 per unit.