IF TECHNOLOGY stocks have done quite well in the past year-and-a-half, so have the funds dedicated to this sector. ICICI Prudential (I-Pru) Technology (Tech), one of the oldest funds in this category, is no exception. In fact, the fund has been a top quartile performer in this category during this period. However, like any other sectoral fund, I-Pru Tech has been through rough weathers since the time it was launched in January 2000.
PERFORMANCE:
The tech bubble that had been building up since 1997 had to go bust some day. Unfortunately for the mutual fund industry, the burst of this bubble coincided with the launch of funds completely dedicated to the technology sector. The fund collapsed by more than 52% in the year of its launch as against the decline of over 61% by its benchmark — the BSE Teck Index.
The following year, 2001, was no exception as the fund's value dropped by 38% against 46%fall in the BSE Teck Index. The fund, however, found its turning point in the following year as it outperformed BSE Teck Index by high margins. By accomodating sectors such as Healthcare, Media, Telecom, Capital Goods and Electronics in its portfolio, the fund managed to deliver over 15% in 2002. The BSE Teck Index declined by more than 3% in that year.
The fund's journey since then has been a smooth sail, as it outperformed its benchmark index by reasonable margins on most occasions and even outperformed the returns of the broader market indices at times. (See Performance Chart). However, with tech stocks contributing only a little to the historic market rally of 2007, investors of I-Pru's Tech fund could pocket just about 11% gains against the Sensex and the Nifty returns of about 47% and 55%, respectively. The BSE Teck too returned just about 10% that year. A diversified-equity scheme fetched an average of 54-55% gains in 2007. Moreover, investors' woes were further aggravated by the market meltdown of 2008 that saw the I-Pru Tech decline by almost 63% against the BSE Teck's dip of about 52%.
However, in 2009, with the revival of most technology stocks, I-Pru Tech earned more than 123% against BSE Teck's 68%. The Sensex and the Nifty have clocked in about 81% and 76%, respectively during the year. Even in the current calendar year, the fund has so far continued its winning spree by clocking in about 9% gains since January this year against about 2% by most other indices, including BSE Teck during the same period.
PORTFOLIO:
With assets under management (AUM) of just about Rs 108 crore, the fund is not very large in size. And currently, around 84% of this corpus is dedicated to the technology sector alone. The only other sector it has diversified into is services. Within the technology space, the fund is clearly inclined towards IT — software with Infosys Technologies alone accounting for about 51% of the fund's portfolio. Having bought this share during the meltdown period, the fund has already made good returns on this single stock alone.
As far as the fund's overall exposure in the technology space is concerned, it has just about 10-13 stocks in the portfolio currently which increases its risk per stock. The portfolio is thus extremely concentrated with maximum exposure restricted to Infosys, eClerx, and TCS. However, investors may well appreciate the fact that nearly 70% of the fund's equity portfolio is currently in the profit zone, as the current prices of these stocks are quoting higher than their cost of investment.
OUR VIEW:
Only those willing to take that extra risk and daring to bet on a single sector may consider investing in IPru Tech. While the fund has been performing better than the markets of late, its single-sector composition and extremely concentrated portfolio makes it unsuitable for an average risk-averse investor who would rather do well to stick to a diversified equity scheme.
