Mutual Funds

Technology funds see some short-term pain

Vivek Ananth | Updated on May 10, 2020 Published on May 10, 2020

All the five schemes in the category have posted negative one-year returns

Technology, information technology services and IT-enabled services are in focus right now as they enable huge swathes of people around the world to work from home and be productive.

Companies in this space have seen some growth taper off over the past few quarters, and some have not performed well.

All the five technology sector-focussed mutual funds — Aditya Birla Sun Life Digital, Franklin India Technology, ICICI Prudential Technology, SBI Technology Opportunities and Tata Digital India — have posted negative one-year returns.

Franklin India Technology has the least negative returns — around -6 per cent.

In the past one year, the Nifty 50 and the Sensex 30 have fallen 19 per cent and nearly 17 per cent, respectively.

Performance

In the two-year time-frame, SBI Technology Opportunities has posted 1.5 per cent CAGR returns, compared with the category average of -0.7 per cent CAGR.

When it comes to the three-year time period, Tata Digital India has the best returns of 12.4 per cent CAGR, above the category average of around 11 per cent CAGR.

In the five-year time-frame, Aditya Birla SL Digital India has returns of 8.5 per cent CAGR, while the category average is 7.1 per cent CAGR.

Some of the short-term underperformance of Tata Digital India and ICICI Prudential Technology can also be due to their choice of benchmark.

The BSE IT index’s underlying stocks are from the IT and IT-enabled services spaces.

The BSE Tech index is more broad-based and includes media and telecom companies.

The best

Franklin India Technology has been one of the best performers in the category in almost all time periods (except for the three-year time-frame). This is mainly because it capped its exposure to Infosys — which has seen some turbulent times — at around 25 per cent. The scheme has also diversified with investments in Bharti Airtel, which has been on the upswing in the past 18 months or so, as the market expects the Indian telecom sector to become a duopoly.

The scheme has taken bets on TCS, one of the main competitors of Infosys, and in HCL Technologies. Although TCS has remained a smaller bet, with it making up only 6-8 per cent of the fund’s portfolio, HCL Technologies has consistently been above 9 per cent.

Despite the recent weakness, HCL Technologies has been a decent performer in the past couple of years.

The worst

ICICI Prudential Technology has been the worst performer in the category (almost all time periods) because it has taken a concentrated bet on Infosys for the past 18 months. Since October 2018, Infosys has been more than 33 per cent of the fund’s portfolio. As of March 2020, this has risen to nearly 49 per cent.

Tech Mahindra has constituted 9-10 per cent of the scheme’s portfolio for the past two years or so. Together, these two make up for almost 59 per cent of ICICI Prudential Technology’s portfolio.

Published on May 10, 2020

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