Over the years we at UTI AMC have worked up our proprietary investment process Score Alpha

To begin with, Congratulations on completing 3 decades with UTI AMC Ltd and the mutual fund industry. How would you describe your journey so far?

It has been a rewarding journey that began with an interest in the fund management space - which actually began with UTI Mastershare - when I was just a Finance graduate. It was an investment made by my father in the UTI Mastershare and I had seen the NAV growth in the Fund as a Finance student and that had sparked the curiosity to learn more and get into this business. In 2004, I was presented with the opportunity to independently manage funds and contribute to the wealth creation journey. And then, as luck would have it, I was the Fund Manager for UTI Mastershare in 2006 - the very fund that lured me towards the mutual fund industry. Though this journey of 30 years looks long in the hindsight, to me it feels it has just been a few years - and it has been all worthwhile.

Your journey at UTI AMC has largely coincided with the evolution of the mutual fund industry. What, you think, were the major changes that shaped the industry to what it is now?

As they say change is the only constant. Every change brings with it opportunities to make good and also challenges you to move forward. When I look back, I think the growth in the financialization of savings is the biggest change that the mutual fund industry has benefitted from. The way people have moved from physical assets to financial assets and their leaning towards mutual funds has led to increasing support by domestic institution’s to the equity markets. The regulatory scenario for the industry also underwent a major transformation. Over the years, there has come in a lot more uniformity in the policy matters for the mutual fund business. All this time, the financial services industry as a whole too was witnessing structural reforms and digital transformation. Though we have come a long way, there is a lot more that the industry is yet to see given the dynamism of the business world.

How do you think the role of Fund Managers has evolved over the years?

I believe it was at the turn of the millennium when the role of Fund Managers became more prominent in the mutual fund industry. The restructuring of the regulatory aspects of the industry made Fund Managers more responsible. Over the years, there has been an improvement in the visibility of the Fund Managers amongst the investors - today Fund Managers share their insights, their management styles and processes with the investors and distributors. This has been very well appreciated by the investors as well. Also, the information availability for the Fund Managers has increased as well - but this implies that the Fund Manager has to be selective while prioritizing what information they consume for their view and portfolio and what they ignore.

What have been your learnings from this experience in the industry?

The time I started was when the Indian economy was going through major structural changes - the economy was liberalizing, the interest rates were coming down and the information was yet to be widely and easily accessible. It was also a time of a poor credit cycle, which led me to one of my major learnings - debt can really destabilize businesses. When the debt levels go up, the capital access to the businesses and thus the markets dry up. This closely coincided with the ‘dot com bubble’ at the turn of the millennium. We witnessed exuberance in the markets towards some select sectors that were doing very well, and some steady businesses were ignored. These were times when the market witnessed great valuations disparity. The markets at those times helped me realize the importance of EVA - Economic Value Add. EVA companies tend to keep doing well despite the high valuations in the markets.

What has been your investment approach over the years?

I have always had a preference towards businesses with strong entry barriers and have a strong competitive franchise for both UTI Mastershare Unit Scheme and UTI MNC Fund. For UTI Dividend Yield Fund, I have leaned towards companies with not just good dividend yield but also having potential for capital appreciation. Over the years, we at UTI AMC have worked up our proprietary investment process ‘Score Alpha’ that rates companies in our investment universe based on the Consistency of operating cash flows and quantum of Return on capital employed. This process documentation encourages diverse investment styles to be matched with the individual Fund Manager style and mandate for each fund category. This has led to a structured approach with the process being at the center and enhancing the cohesiveness in the team and a smooth transition without altering the mandate in case where the funds are handed over to another fund manager.

What would your advice to the upcoming fund managers?

An advice that I would like to give them is that they should stay clear of the prediction games - there is always a risk of the unknown. Over the years I’ve seen that the risks can be vastly different from the predicted trajectory and can also be black swan events that have a far out impact. However, one should always be prepared. If you are entering the role of a fund manager, it is important to have the bigger picture view. The position sizing is very important when it comes to managing funds. As it is said, the journey of wealth creating is a marathon, not a sprint. To the budding fund managers as well as investors - if you find good businesses, allow it to compound returns, avoid unnecessary trade-ins and outs. Being humble and listening to contrarian view to yours helps you be more reasonable about the expectations. Control your emotions when it comes to stock picking while considering all variables. These traits would help strengthening your conviction of work.

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