Vetri Subramaniam

Well timed IFA engagement yatra: 51 cities in 10 days

Vetri Subramaniam

Group President & Head of Equity


UTI MF’s entire equity team, led by Vetri Subramaniam, is hitting the road over a 10 day period to reach out to IFAs in 51 cities across 17 states – to give them the much needed conviction boosters that they can transmit onward to anxious clients rattled by market volatility. A sound investment process says Vetri, reduces chances of costly mistakes – which then gives one the confidence that market volatility can only cause temporary loss but not permanent destruction of capital. Understanding the process then becomes the biggest conviction driver for IFAs to enable them to hold their clients’ hands with confidence. Vetri takes us through the contours of this well timed UTI MF Equity Yatra and also addresses some key concerns around earnings and valuations.

WF: What is the genesis of the UTI MF Equity Yatra initiative and what are the contours of this program in terms of coverage?

Vetri: Millions of new investors have entered the equity markets in recent times. Many are experiencing the volatility inherent in equity markets for the first time and need handholding. Through this yatra we will be connecting with thousands of IFAs all over the country. During the Yatra. we will highlight our proprietary investment process and share our thoughts on wealth creation. UTI has a large and experienced investment team; 15 members of the team will be covering 51 cities in 17 states in 10 days. Our focus is primarily on Tier II and III cities during this yatra.

WF: What are the key messages you will be communicating in the UTI MF Equity Yatra?

Vetri: Investors come to us in pursuit of Alpha. They are investing to meet certain financial goals and we are their partners in this long term journey. This is even more relevant today as we see investors commit to long term investments through the SIP route. We bring a manufacturing company mindset to this effort in operating with a clearly articulated and documented investment process with data driven checkpoints and parameters. The process provides a framework which ensures consistency in research methodology and discipline in portfolio construction. The process is our north star even as the market changes colours and moods. Investing is a marathon and not a sprint. The process is key to making the alpha generation repeatable over long periods of time. Of course every process requires a credible and experienced team. Our message resonates even stronger when our IFAs see the consistency in the message that is being spread, not just by any one individual, but by all members of the team. Further, we will also talking about the behavioural issues that mar investor experience.

WF: What in your opinion is the biggest role of processes in equity investing – is it about avoiding costly mistakes or is it about finding the best bets?

Vetri: On balance, the research methodology is about avoiding the costly mistakes. Once, you reduce the possibility of costly mistakes what you are left with are the stocks in which you are more likely to find the big winners. In my experience, the challenge is not in finding the winners but in staying invested with them. The discipline that we bring to portfolio construction and monitoring aids us in being patient investors and thus realizing the benefits from the big winners. The biggest benefit of a process is that it is repeatable, brings consistency and outlasts the people who work with it. In one short phrase - institutionalization of the investment organization rather than a star fund manager driven approach.

WF: Mid and small caps have seen a significant correction over the last 12 months. How do you see this space shaping up now? Is it time to invest aggressively in this space or does it not yet offer good value?

Vetri: Historically, mid-caps have traded at a discount to large caps. At the start of 2018 the mid-caps were trading at a 25-30% premium to large-caps. With the correction over the past 12 months, the top-down view to avoid mid-caps because of a valuation premium no longer exists. Today, mid-caps are once again at a slight discount to large-caps based on forward earnings. Hence, we are more constructive and bottom-up and seeking out opportunities in the mid and small-cap space. But, based on historical data the moment to be aggressive is when the mid-cap discount to large-caps is over 25%. We are not there at this point.

WF: The “lost decade” of corporate earnings is frustrating most market participants. What exactly lies at the root of this prolonged sluggishness in earnings momentum? Do you see any realistic signs of a sustainable broad based earnings recovery?

Vetri: One way of thinking about this is that the economy has 3 cylinders – consumption, capital investment & exports. We have not had all three cylinders firing simultaneously in recent years. I would also single out the delay in cleaning up the excesses of the previous credit cycle as a contributing factor to the sluggishness. We have the ingredients for a more broad-based earnings recovery but, the exact tipping point is hard to pinpoint.

WF: In recent years, “quality” stocks – companies with high earnings visibility – have been significantly re-rated upwards, perhaps due to too much money chasing too few alternatives. What happens when we finally see a more broad based earnings recovery? Is there a risk of these “quality” names getting de-rated as more investment opportunities emerge?

Vetri: That would be a classic case of reversion to mean and would certainly be something to be on guard for. However, what history tells us is that while such quality companies could underperform, as long as they have healthy cash flows and return ratios, they do not cause permanent destruction of capital. It is the fad stocks built on unsound financials that cause permanent impairment of capital.

WF: How are you guiding your equity strategies in terms of sectoral/thematic preferences and market cap preferences?

Vetri: We do not have a single approach. Our process guides stock selection & portfolio construction as appropriate to the fund mandate. This is exactly what we would be highlighting to IFAs during the UTI MF Equity Yatra.

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