Ankit Agarwal, Fund Manager – Equity, UTI AMC

29 Sept 2023 , 03:39 PM

Can you explain the investment philosophy and approach of UTI Innovation Fund?

UTI Innovation Fund is an equity-oriented fund following a bottom-up approach for investing in innovation-oriented businesses and disruptors with the potential of non-linear growth outcomes. The fund would have bias towards high growth-oriented businesses with a focus on the quality of businesses i.e., having the attributes of market leadership, robust business model, quality management, and corporate governance etc. The fund would also look for businesses that may have limited track record but have a robust business model leading to greater social/environmental good and shareholder value.

What criteria do you use to identify innovative companies for investment within the fund?

The investment strategy of the fund focuses on 3 pillars vis., Innovation: Companies using innovation to enhance productivity or improve environmental/social impact; Growth: Companies with significant growth potential, demonstrated track record of developing the market and/or gaining market share; Quality: Financially strong companies with market leadership, robust business models, quality management & corporate governance. The investible universe at UTI consists of about 370 companies (as on Aug 31, 2023) which form the basis for portfolio construction across the equity strategies. From the overall universe about 30-40 companies are believed to have the core attributes of innovation. From the universe of innovative companies, UTI Innovation Fund shall further select financially strong businesses which have high potential of growth and wealth creation. The Fund would follow a buy and hold strategy and aims to benefit from the full growth potential of the businesses; therefore, the fund may have a low portfolio churn ratio.

How does the fund's strategy differ from other funds in the market focused on innovation and technology?

UTI Innovation Fund is true-to-label which invests predominantly in innovative businesses and disruptors and, therefore would have a higher active share due to the focus on innovation. The Fund leverages its in-house ScoreAlpha investment strategy which is a standardized and in-depth research methodology through which the fund consistently aims to identify good stocks and avoid poor stocks. The Fund actively looks for companies that are financially strong, have high growth potential, robust business models and the ability to sustain growth and shall avoid investing in businesses which are financially weak, have high leverage and/or not self-sustaining in nature. Further, the fund would have limited exposure in cyclical sectors including cement, utilities, telecom, commodities, metals, oil & gas, cement, etc. The Fund’s discipline of picking businesses that are true to innovation and its patient approach to ride the underlying waves of innovation sets it apart from peers.

How does the fund manage risk, especially in emerging sectors like technology and innovation?

As a part of the fund’s Risk Management Framework, it shall increase or reduce its exposure into stocks based on valuations and internal stock limits. Further, the fund continuously looks for some of the red flags which trigger the call for either trimming the exposure or exiting from a stock. The key factors that the fund evaluates includes Governance/ management issues: Companies facing interim governance issues or undergo change in business models affecting their growth trajectory or change in their innovative characteristics; Inefficient capital allocation: Companies with consistent capital misallocation leading to productivity issues; Change in business objectivity: A change in the initial hypothesis regarding the innovative characteristics of the companies due to new entrants in the market, lack of competitive advantage or change in their business models.

What are some of the key performance metrics that you use to assess the success of the fund?

In an era of rapid technological advancements and evolving market dynamics, innovation could be a significant contributor to growth and wealth creation. Innovative companies would be ahead of peers in investing in technology or would take market share away from incumbents. India seems to be at an inflection point today, of its innovation journey, with labor, entrepreneurship and capital all favoring a non-linear growth to happen in the tech and innovation space in India. The Fund would have a biasness towards high RoCE companies and companies with consistent positive cash flows. The fund is also open for opportunities with past track record of weaker RoCEs, however, with significant growth potential in the near future. The fund would be agnostic to market cap and sectors. 

Are there any specific trends or technologies that you are particularly excited about?

India has emerged as the third-largest start-up ecosystem globally, and the number of start-ups has surged in recent years offering promising opportunities with the availability of funding from many global private equity and venture capital firms. The Fund aims to invest in potential investment opportunities such as, but not limited to, ecommerce, software, fintech, specialty chemicals, clean tech, healthcare, food tech, digital ad companies etc. The Fund would have a higher active share due to the focus on innovation, however, it follows robust risk-assessment framework that aims to manage portfolio risks – concentration and disruption.

The fund's prospectus mentions a focus on long-term wealth creation. How does the fund align with the long-term financial goals of investors?

UTI Innovation Fund marks a significant step forward for investors in navigating the ever-growing landscape of investment opportunities. It is a unique portfolio that is true-to-label, investing predominantly in innovative businesses and disruptors. The Fund provides an opportunity to embrace innovation, adapt to market dynamics, and participate in potential wealth generators that could grow in a non-linear fashion.

What kind of investor profiles or financial goals would benefit the most from, including UTI Innovation Fund in their portfolio?

Investors seeking relatively high growth potential and willing to ride the underlying waves of innovation may consider investing in this fund. Investors may invest through lump sum or staggered (SIP/ STP) allocation and with a long-term horizon with a minimum horizon of 3-5 years. Having said so, to benefit from potential non-linear growth of the portfolio companies through the entire cycle, investors may consider remaining invested for much longer periods. 

Product Label & Riskometer

 

UTI Innovation Fund

(An open-ended equity scheme following innovation theme)

 

 

Note: Product labelling assigned during the New Fund Offer (NFO) is based on internal assessment of the scheme characteristics or model portfolio and the same may vary post NFO when the actual investments are made.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.