It's All about the Team

Swati Kulkarni, Executive Vice President and Fund Manager, UTI Mutual Fund, talks to Aarati Krishnan about her journey in the mutual fund industry.

It took quite a bit of coaxing to get Swati Kulkarni, senior fund manager with UTI Mutual Fund, to agree to an interview for this column. That's quite unusual because Swati has never displayed any reluctance to share her views on either funds or markets in our earlier interactions. So when we finally meet at the UTI office at the sprawling Bandra-Kurla complex, her first question to me is - "Why do you want to profile me? I'm not a big shot!"

I tell her that, in my view, she is because there aren't too many managers in India who have managed portfolios for 20 years. The funds managed by her - UTI Mastershare, MNC Fund, Top 100 and Dividend Yield - have been solid long-term performers. What's more, while there are plenty of high-profile women in banking, there are very few in fund management. Therefore, readers would be curious to know more about her.

Swati got into fund management at a time when the industry was in its infancy. Having completed her masters in financial management from NMIMS (Swati doesn't mention it, but she was a university ranker), her first stint was at Reliance Industries. When UTI was recruiting for its equity team, she jumped at the chance because she felt the firm would offer better work-life balance. Thus began a twenty-year career in dabbling in money and markets.

So what has changed with fund management in the last 20 years? Are companies better governed? "I think one thing that has really changed is the amount of information available. When I started, you didn't have quarterly results. There have been other effects of globalisation too. The ambitions of Indian corporates have expanded beyond geographical boundaries. So you've seen certain groups getting very aggressive with acquisitions. That has led to a mismatch between the return expectations of promoters and those of investors," she says.

Isn't market manipulation far more difficult today than it was in the wild West of the nineties? "Yes, but it hasn't totally vanished," she says. "Let's take small- and mid-cap stocks. They have limited float. So, if you keep buying these stocks for your portfolios, your purchase bids are enough to up the price. I won't say it is manipulation, but there is an impact cost," she says.

The moat matters
Though mid- and small-cap stocks have been rock stars in this bull market, UTI Mutual Fund has stayed a large-cap oriented house. With so many analysts tracking large-caps, can a fund manager really generate alpha in them, I ask? Swati believes that one can. "I'll give you the example of TCS. In 2009, one could generate high alpha by staying overweight on TCS and going underweight on Infosys. TCS was delivering high growth quarter after quarter, yet it was under-represented in the index. The valuations were not at all expensive, it was quoting at ten-12 times and the growth was above industry's."

Swati adds that she is not averse to mid caps per se, having bought stocks like Marico and Bharat Forge, but the qualities she looks for in businesses - a high return on capital, low appetite for equity, positive cash flows and a wide moat (à la Warren Buffet) - are not to be found in too many small firms.

But it is often consumer stocks, like FMCGs, which meet these criteria, and with their P/Es at 30-40 times, aren't they far too expensive? Swati agrees. And this is why the next leg of this bull market needs to be driven by investment rather than the consumption theme. "But I can get 'wide moat' stocks in these sectors too. For example, I would play construction through cement rather than construction stocks. I would rather play autos through auto ancillaries which have technology as an entry barrier."

Talking of wide moats, why has Dividend Yield Fund underperformed in the last three years? One reason is that PSU banks and energy stocks in the fund have underperformed. The other is that UTI has not really dabbled in small-ticket dividend yield candidates. "You have many stocks in the market-cap range of ₹500 to ₹2,000 crore that have done extremely well and may have a high dividend yield. But we have always preferred to stay in stocks where impact costs are low. We wouldn't be happy owning 3-4 per cent of a company's equity in a single fund. We want an easy entry and exit." But she believes that value stocks in the portfolio, such as PSU banks, oil and gas, and chemicals, would pay off in a big way as they get re-rated.

MNC funds, including UTI's, have delivered exceptional returns in the last few years and many investors seem to be jumping into them from diversified funds. Is the theme sustainable? "MNCs have done well for the last 10-12 years, so you just can't ignore them. The valuations are high, but these businesses are solid, have high-entry barriers and have good brands. The ROCE for the MNC index is 45 per cent. We are advising investors to consider a 10 per cent allocation to the MNC fund. It can't be a core holding though. Tomorrow, if infrastructure stocks or banks or construction stocks start doing well, the MNC fund may miss out as it does not own these."

Team spirit
So why has Swati stayed with the same fund house for 20 years, when most fund managers jump jobs every so often? Swati finds that question quite amusing. "I got the thrill of switching many jobs even while staying with UTI," she says referring to her stints in macro research and products as well as the management change in UTI.

"When it comes to expectations, UTI has always been professional and team oriented. I don't think this business is about an individual outshining others. I have seen in the last 20 years how fund manager fortunes keep changing. It is immodest to assume that you're driving the show. It's the resources that the organisation provides that help you perform," she says quite seriously.

But does it give you sleepless nights, managing other people's money? Women tend to take their responsibilities a bit too seriously isn't it, I ask.

"Yes, the tension is there," she admits. But her solution, when she's worked up, is to go back to her portfolios and redo the maths. "I relook at the rationale for buying each stock. If facts haven't changed, I don't alter the portfolio much. But on things which are beyond your control, you just have to show patience," she says. "If it's your own money, then you're not answerable to anyone. You can take intuitive calls based on your experience."

So does she take such intuitive calls with her personal money?

No, smiles Swati, admitting that she was quite a late starter even with equities as an asset class, despite being neck deep in the market at work. "I am pretty lax with my own money. It was my husband who pushed me to invest more actively." Does she have a financial planner, I query. "No, do you want to take on that job?" she counters.

Swati began investing actively in equity funds in 2005-06 and keeps mainly to UTI funds. She owns several UTI funds but sticks to a preset allocation between large-cap, mid-cap and MNC funds. Her debt investments used to be parked in FDs but are now in UTI's Treasury Advantage Fund. Why the switch? "The post-tax returns are far better than what you get on an FD and if want to shift into equities, you can do it very quickly". Why not bond or gilt funds?

Swati feels that investments in long-term debt funds need to be well-timed. "I took some allocation to them after Dr Rajan took over in 2013. I made a good 15-16 per cent return and booked profits. But I don't think I have the temperament to keep doing this," she says.

So is she born and brought up in Mumbai? Yes, says Swati. She spent the initial years of her married life in the IIT-Powai campus, "which is not really Mumbai." "I was fortunate because there you have a middle-class set-up which is good for the kids." In 2009, she and her husband decided to take the plunge and buy an apartment at Bhandup. They moved there two years ago.

Has she ever been tempted to become a stay-at-home mom? "Never," she asserts. "What would I do at home?" Even now, she says, she gets impatient on weekends!

So is she into fitness? "I play volleyball and table tennis. Are you surprised?" asks Swati with a smile. She was a talented volleyball player at college, actually representing the university quite a few times. She has managed to keep in touch with her volleyball buddies and they get together quite often to play. It was her volleyball captain, in fact, who inspired her to focus on her career.

So, what were her investment mistakes? "After the 2000 bull run, I realised there is no point in looking at concept stocks. The kind of assumptions you make in such stocks to justify the valuations are all in the air. In 2009, I learned not to take big cash calls. In the run up to elections we had a lot of cash. By the time the event was over and we could invest, markets had already run up 40 per cent. Each cycle teaches you something."

She also believes that team sports can teach you a thing or two about being a portfolio manager.

"The format of the game is that you only get three passes. If you're a striker you have to finish the point. But to finish it, the people who pass the ball to you have to do their job right. And wherever, whichever way passes come to you, you have to adjust yourself to score the point. The person who gives the first pass is important and so is the person who finally smashes the point," she says. "The fund manager's job is something like that. The analysts who generate your calls are equally important. You are at the front end, but ultimately you can't forget that it's a team effort. Maybe the fund manager gets too much attention," she says, "particularly if she is a woman."