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Himachal Futuristic in UTI Pharma Fund!

Aabhas Pandya

Fund managers often transgress the pre-defined universe of their sectoral funds to generate higher returns. So, don't trouble your grey cells if you find that the Unit Trust of India's UTI Pharma Fund holds telecom major Himachal Futuristic Communication (HFCL) in its portfolio. The scrip figures in the fund's latest available portfolio as on March 31, 2000.

HFCL has a weight of 4.94 per cent in the pharma fund, which translates into an investment of Rs 33.3 million on a total asset base of Rs 676 million as on March 31, 2000. Among the other top holdings of the fund are Dr Reddy's Laboratories, Ranbaxy, Cipla, Hoechst Marion Roussel, Novartis, Torrent Pharma, Pfizer and Aurobindo Pharma. Clearly, HFCL is the odd man out!

The company did not figure in the fund's portfolio as on December 31, 1999. Either HFCL had a marginal weightage in the portfolio or the fund invested in the telecom stock at a later date. Since January 3, HFCL has seen a major rally on the bourses with the scrip vaulting by 230 per cent from Rs 731 on January 3 to Rs 2415 on March 7, 2000. While HFCL retreated in the subsequent hammering to below Rs 700-levels, it has now bounced back to Rs 1300-1400 levels.

Launched in June last year as part of UTI's sector series, the fund has declined 24.76 per cent against the pharma fund sector average drop of 29.5 per cent in the five months ending May 31, 2000. The investment in HFCL has definitely given a cushion to the fund's returns.

The investment objective of UTI Pharma Fund states that investments will be made in stocks of companies engaged in manufacturing of pharmaceuticals, medical equipment and accessories, personal healthcare and companies owning hospitals. So where does HFCL, which manufactures products like analog subscriber carrier system, optical fibre cable and OLTE Terminals, fit the bill?

There is a link, albeit a weak one, which still does not merit HFCL to be part of the pharma fund's portfolio. Last year, HFCL launched Medisoft, an integrated hospital management system, which manages the entire hospital functioning - from diagnosis to billing and inventory management. By the same parameter, Siemens can also be part of a pharma fund portfolio since it manufactures X-ray and medical electronic diagnostic equipment. However, in both cases, the contribution of these products to the companies' turnover is minuscule.

Last year, Kothari Pioneer FMCG Fund had invested in Zee Telefilms. The scrip continues to be the fund's top holding and the AMC has defended its investment decision by stating that television products are 'consumed' by the masses. Given the spurt in Zee in the last one year, Kothari FMCG has delivered higher returns than its peers have.

Although most funds have stuck to their stated investment objective in their sector funds, pressure to generate returns is beginning to force fund managers to stretch their pre-defined universe. Clearly, this is not a healthy development for the fund industry.

Source: Value Research

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