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Suresh Krishnamurthy

SMALL exposures can be considered in UTI Master Value Fund. The fund seeks to generate returns by investing in mid-cap and small-cap stocks. The performance since launch has been better than its benchmark S&P CNX Midcap 200.

The fund follows a value-investing philosophy. Investments in stocks are made based on factors such as low PE ratio, high dividend yield and low price to book values.

However, only small exposures are advisable now. The fund turned open-ended only in January 2003. Managing an open-ended fund presents additional challenges compared to managing a close-ended fund. This might lead to a reduction in the proportion of investments made in illiquid under valued stocks.

Any such changes in strategy can affect performance of the fund. As such, it will be better to step up exposures after reviewing the performance over the next few months.

The fund has declared a dividend in April. It would be better to enter the stock after the record date for the dividend. However, investors in the fund will also benefit from the open offer for the shares of Colour Chem — the open offer price is higher than the prevailing market price. The open offer opens on May 28, 2003 and investments need to be made ahead of that.

Suitability: Investments in mid-cap and small-cap stocks are subject to higher risks than large-cap stocks. Investments in a fund such as Master Value Fund will be subject to such risks.

Performance: The fund's performance in the last 12 months has been substantially superior to that of S&P CNX Midcap 200 Index. This is because of the sharp rally in the prices of mid-cap and small-cap stocks. However, the performance has been better over a longer period too, and compares favourably against indices such as S&P CNX Nifty.

Portfolio composition: The fund held more than 60 stocks in its portfolio. It was not however extensively diversified. The top ten stocks accounted for close to half of the net assets. Along with cash, the top 30 stocks accounted for about 86 per cent of net assets.

The proportion of high dividend yield stocks in the portfolio was high. Stocks such as ONGC, IOC & GAIL, which offer dividend yields of more than 5 per cent, constituted about 25 per cent of net assets.

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