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WF: In what ways has UTI Wealth Builder's positioning and fund strategy been refined and since when has the new strategy been implemented?
Srivatsa: We changed our positioning in the last one year by making it a dynamic asset allocation from a fixed asset allocation of gold and equity. The participation in derivative / arbitrage segment is another change in fund 's investment strategy while allocation to gold may not remain as high as in the past.This revised strategy was implemented since last July.
WF: Would you say this fund should be viewed more as a dynamic equity fund or as a multi-asset fund?
Srivatsa: Though the fund has allocation to three different asset classes but the fund is more of a dynamic equity allocation fund than a multi asset fund.
WF: What factors go into your model that decides equity allocation? What is the current equity allocation and how has it moved since Jan 2016?
Srivatsa: The model is based on fourteen factors ranging from value, quality and momentum which are short listed from 58 sub factors. Some of these sub factors include PE, Dividend yield, RSI, book value etc.
WF: Your fund mandate allows you between 0-35% allocation to gold but your presentation says it will be normally in the 5-10% range. What is the current allocation to gold and under what circumstances will you consider allocations above 10%?
Srivatsa: The allocation to gold is mainly for a diversification purpose than a return kicker. The allocation to gold is currently around 7% and the we intend to bring it to below 5%. Gold had underperformed in the last one year and we are waiting for better exit point.
WF: The equity strategy is stated as large cap oriented. Are you more value or growth oriented in terms of style?
Srivatsa: Ours is a value based focussed large cap fund.
WF: You have a significant underweight position in financials - which makes up the biggest segment within the large cap index. Can you please walk us through your thinking behind this aggressive underweight stance?
Srivatsa: We are finding the financials space very expensive and since ours is value based fund , we have gone underweight on the sector . While private sector banks have seen growth, their valuations are at an all time high which probably do not discount most of the risks. PSU banks though appearing cheap may still suffer from high credit costs.
WF: What are your key overweight sectors and why?
Srivatsa: Our key overweight sectors are Information technologies, utilities, metals and healthcare. We believe that IT can still be a growth sector from a medium term perspective and current valuations of around 12x one year forward earnings and 3-7% free cash flow yield offers huge comfort to us. In case of utilities, we see growth levers ahead as the PLF of the capacities ramp up and valuations are comforting and metals we see prices stabilising given the crackdown on Chinese capacities in ferrous and non ferrous.
WF: What is your overall call on markets? Are we seeing what looks like a mean reverting correction or are there any global or domestic worries that warrant more concerns?
Srivatsa: Markets are in slight expensive zone, while the macro triggers are there in the form of revival of growth, low inflation, reforms, good external data points, the valuations at 18x capture large part of the upside. We do expect a time correction in the markets and would be worried on any global negative news which can undermine the liquidity of the markets.
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Fund Focus: UTI Wealth Builder
