February 24, 2024

UTI Nifty Next 50 Index Fund – A fund that looks for opportunities within large caps with potential to grow big

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As a generally accepted global, equity benchmark indices are often viewed as a rational indicator of a country’s financial health. In the case of our domestic market, the Nifty 50 index is considered as a barometer to measure the strength of the booming economy, the Nifty 50 index represents the weighted average of the top 50 companies by market capitalization that are listed on the National Stock Exchange (NSE). However, apart from these top 50 companies, there are several other large-cap stocks (upto 100 stocks by market capitalization) with immense growth potential, which could possibly be the potential candidates of the Nifty 50 index.

The Nifty Next 50 index aims to measure the performance of the next 50 within the large-cap companies list of Top 100 companies, which come after the top 50 companies on the basis of free-float market capitalisation. Financial experts often recommend that investors should invest in funds that nearly capture the complete spectrum of the markets, in other words, well diversified funds. One tends to gravitate towards large cap funds since they optically cover anywhere from ~80-85% of the market capitalization. Although large caps do represent the broader markets/indices, investors should recognize that these funds do not always reflect or capture the opportunities across the spectrum. The entire spectrum could include opportunities in different market capitalizations, different investment approaches (growth vs. value) or even the cyclicality in certain segments of the overall markets. This anomaly or rather varied market dynamics gives the fund manager/s the broad field for unique opportunities across the market capitalization spectrum and investment styles at the same time ensure that the relative portfolio risk is reduced.

UTI Value Opportunities Fund is one such fund that looks for opportunities which are expressed in terms of relative intrinsic value of a given stock. This means following a “Value” style of investment and across market capitalizations, where “Value” is buying things for less than their intrinsic value. Intrinsic value is simply the current value of the cash flows that the company generates for its shareholders over a period of time. Undervalued businesses can be found at two ends of the spectrum. At one end, the market may under appreciate the sustainability of competitive advantages and/or the length of the growth runway for the company. These companies defy the norm of cyclicality and reversion to mean. At the other end of the spectrum there are companies that may be experiencing challenges due to cyclical factors, changes in the environment or their own past actions. But if the core business is healthy and a path to a better future (cash flows, return ratios) is visible, then their depressed valuations offer an attractive entry point. The opportunity in both cases is to buy something cheap relative to expectations.

UTI Nifty Next 50 Index Fund was launched in the year 2018. The Fund has an AUM of over Rs. 2,000 Crores with over 4.73 lakh unit holder accounts as of June 30, 2022. While the portfolio exposure restricts it to only large caps, the fund offers exposure to differentiated businesses with multiple themes within the given universe. The Fund has about 20% exposure to Financial Services against ~ 37% exposure of the said sector in Nifty 50 Index as on August 31, 2022, however if we see the exposure within sector, while Nifty 50 exposure in Financial services is largely restricted to Banks and NBFCs, the exposure of businesses in Nifty Next 50 varies to NBFCs, Housing Finance companies, Asset Management Companies and Life and General Insurance companies. The scheme which being an index fund based on Nifty Next 50 Index offers a diversified portfolio both at stock as well as sectoral level where the weight of the Top holding is ~ 6% and Top sector is ~ 20% as compared to 11% and 37% (Stock and Sector) exposure in Nifty 50.

UTI Nifty Next Index Fund may be suitable for those equity investors who are looking to build their equity portfolio with differentiated businesses within Largecap universe and seek long-term capital growth. The Fund is also suitable for investors with a high risk profile, looking for reasonable returns over the medium to long term subject to market conditions.