Technology funds make merry

Funds that invest in technology stocks have been the flavour of the season over the past one year, with returns from these schemes comfortably trouncing the Nifty and Sensex.

However, a few funds failed to beat their benchmark, the BSE IT and BSE Teck indices. Software companies have been among the few islands of strong growth in the markets as a weak rupee, improving US and Europe markets and rising deal wins boosted earnings and stock price performance. What started as a large-cap- led rally later expanded to include several mid-tier IT companies as well. There are only five funds with their core theme as technology. Among them, Birla Sun Life New Millennium and DSP BR Technology.com also invest in the telecom and media sectors. Franklin Infotech, ICICI Pru Technology and SBI IT predominantly invest in IT and IT services stocks.

Technology sector funds have performed well over the past one-, three- and five-year periods, outperforming the diversified schemes during these periods.

ICICI Pru Technology has delivered extraordinary returns of 43 per cent in the past one year, outperforming the BSE Teck’s 24 per cent returns and also the BSE IT index’s returns of 29 per cent.

In the last five years, ICICI Pru Technology (39 per cent) and SBI IT (34 per cent) have convincingly outperformed the BSE IT. The other funds have delivered between 25 and 31.5 per cent returns. These funds have been delivering superior performance over the past three-four years.

Infosys is a key stock that all funds have as their top holding. All funds have around 30 per cent of their portfolio allocated to this stock. In Birla Sun Life New Millennium’s case, the figure is close to 28 per cent. IT heavyweight Tata Consultancy Services is the second choice of the funds. Interestingly, ICICI Pru Technology, which has significantly outclassed its peer funds over one, three- and five years, hasn't owned shares of TCS since July 2012. Some of the mid-cap IT stocks, namely Mindtree, Persistent Systems and Infotech Enterprises, were multi-baggers in the last one-year period, helping the funds outperform.

After bottoming in April 2013, Infosys surged by 75 per cent before it started witnessing some pressure last month.

DSP BR Technology.com, which is an underperformer among the funds, is overweight on large-cap IT stocks Infosys, TCS, HCL Technologies and Tech Mahindra. The fund has almost 4 per cent exposure to telecom sector stock Bharti Airtel, which has been an underperformer over the past few years.