UTI MF has launched two smart beta funds – UTI Nifty 200 Quality30 Index Fund and UTI Private Bank Index Fund – which offer attractive mean reversion opportunities for alpha seeking equity investors. Both sets have underperformed the market significantly but possess sound fundamentals that make mean reversion upswings only a question of time.
Quality has underperformed Value since 2021 and has only started finally outperforming value by small margins over the last 3 months. The Quality 30 basket is chosen on stringent parameters which include consistency of profitability and currently comprises of almost 30% each in IT and FMCG sectors – which makes this fund’s composition starkly different from most other active and passive strategies.
The Private Bank Index which comprises the top 10 private sector banks has dramatically underperformed the market and its PSU bank counterpart over the last 1 year. Sound fundamentals coupled with valuations at a 40%+ discount to long term average makes this set of stocks a great mean reversion play.
Alpha seekers can broadly either invest in momentum plays or mean reversion plays. The former needs you to be nimble to discern when to exit while the latter may need patience but offers considerable margin of safety.
Passives have grown a phenomenal 12x over the last 5years and are actually continuing to accelerate, now accounting for over 25% of net monthly sales of all equity funds.
Among non-institutional investors, there are 2 distinct categories: young first time investors seeking low cost beta/market participation as their first step into markets and HNIs seeking alpha from smart beta funds.
UTI MF has assiduously built up its capabilities in the passives space on the back of quality people, robust processes and a track record of minimal tracking error. The fund house is now rapidly scaling up its passives vertical even as it maintains unwavering focus on its active strategies.