The Hindu Business Line : Tech funds outpace others

WHEN did you last look at the performance of technology funds? Did I hear an apologetic "Not in recent days"? Well, for the record, these funds have wrapped up the year in style, thanks to their average score of 50 per cent for the one-year period ended March 31, 2005. And that's just one half of the story.

The other half lies in the fact that their score has actually propelled them to the top of the heap, an act that is not matched by other categories of equity funds.

In comparison, if you had invested in FMCG funds one year ago, your average return would have been slightly less than 47 per cent, while an allocation to banking funds would have given you around 41 per cent or so.

So, which are the big guns in the tech funds category? According to figures collated by Value Research, Franklin Infotech has delivered roughly 59 per cent, while UTI Software has provided investors with about 42 per cent. These are the highest and lowest scores respectively.

In between, you have the likes of Alliance New Millennium (53 per cent) and SBI Magnum IT (55 per cent).

In case you are wondering what the hullabaloo is all about, consider this: Tech funds did not figure anywhere near the top till recently. In fact, their six-months' performance was a measly 18 per cent. The funds concerned have been true-to-label, with their managers sticking essentially to the nitty-gritty.

Franklin Infotech, the leader, is 95 per cent invested in its chosen area, while DSP Merrill Lynch Technology.com has a marginal exposure to the services sector. In most cases, the portfolios are heavy with such well-known names as Infosys, TCS, Wipro, TCS and Satyam. In certain cases, smaller companies such as CMC and Geometric Software also figure somewhere near the top.

Let us consider a few relevant issues and the investment strategies that fund managers have lately followed. Mr Sanjay Dongre, who manages UTI Software, has referred to the budgetary provision on fringe benefit tax, which would impact the services sector. He has also talked about the last set of results posted by IT companies.

"The outlook for the sector continues to remain good. Strategic outsourcing trend would help companies to change the offshore-onsite mix and it would impact the margins favourably," Mr Dongre has mentioned, adding that new clients are coming in at higher than average billing rates.

At the end, allow us to tell you about a new service that ranks fund heavyweights. The matter has been brought to our attention by Jayaprakash, an old friend who works for Franklin Templeton. `The Rankings Service' in the US rates managers, not funds. It follows them as they move from one assignment to the next.

The logic is simple: A newly-appointed manager may not hide behind his predecessor's superior performance. Also, a bright chap may not suffer because of the terrible show put up by his second-rate forerunner. "There's no guarantee a manager will stay on top. But studying managers can be helpful in picking funds, especially when a new manager comes aboard", it is pointed out.

One wonders if there is scope for such a service in India too.

Feedback may be sent to nilanjan@thehindu.co.in

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