UTI Mastershare Plus: Switch

Recommendation: Switch

Aarati Krishnan

MASTERSHARE Plus, the growth scheme from the Unit Trust of India, has trailed behind smaller diversified funds in performance in recent times.

The fund, which has traditionally tracked the BSE Sensitive Index, has matched the Sensex in point-to-point returns since December 1999. However, its large size and a fragmented portfolio are handicaps for investors continuing with their investments in Mastershare Plus.

A small or mid-sized diversified fund may be better able to capitalise on a market uptrend, when it materialises. Therefore, though the equity market is at a low level, investors could switch to one of the better-performing small/mid-sized equity funds. Investors wishing to duplicate market returns may switch to the UTI's Nifty Index Fund.

Performance: In the period from end-December 1999 to end-February 2000, Mastershare Plus registered an NAV appreciation of 14 per cent, against a 9 per cent gain in the Sensex. From the market peak of February 2000, the fund suffered a shaper decline of 30 per cent vis-a-vis a 28 per cent decline in the Sensex. As a result, net gains on fund over this period, more or less match that on the Sensex.

While the fund has underperformed smaller diversified funds such as Alliance Equity Fund, Kothari Pioneer Bluechip Fund and Kotak Mahindra K-30, its did better than Morgan Stanley Growth Fund, of comparable size. The latter appreciated 10 per cent in the December-February period, but lost 36 per cent since.

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Portfolio: By end-September, the Mastershare Plus portfolio had a modest 23 per cent weightage in technology/media/telecom stocks. The weightage is marginally higher than the 21 per cent allocation to such stocks in June. A high weightage in cyclicals and a low technology weightage is probably one reason why this fund has trailed other diversified funds, such as Kothari Pioneer Bluechip and Alliance Equity Fund in performance. The latter have opted for a more aggressive weightage in technology stocks over the past year.

FMCG (at 23 per cent of assets), oil and petrochemicals (22 per cent of net assets), were the other key sectoral weightages. The fund had a modest 4 per cent allocation to pharmaceutical stocks, and similar allocations to cement, capital goods and power stocks. Given the unsatisfactory financial performance from most cyclical and economy-sensitive sectors in the latest quarter, the performance could be weighed down by its heavy cyclical exposures.

Size is also a definite disadvantage and could prevent the fund from taking full advantage of the price action in its holdings. Mastershare Plus had a net asset size of Rs 673 crores by end-September. The portfolio features over 100 stocks. However, a large number of holdings are of a marginal nature and the net assets are fairly concentrated in the top 25 stocks. The top 25 holdings accounted for 85 per cent of the net assets in September.

Fund facts: Mastershare Plus, launched in December 1991, has managed a compounded annual return of around 12 per cent since launch after factoring in its two dividend payouts of 12 per cent and 15 per cent. The Sensex returned around 9 per cent on a point-to-point basis in the same period. Originally close-ended, the fund was converted to an open-end fund in 1998. The NAV is now Rs 18.91 per unit.