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Large-caps Hold Sway

Instead of following the crowd, Franklin Infotech tends to chart its own course. In the process, it may lag behind on occasions, but then for those seeking quality exposure, this could be the best bet

Franklin Infotech Fund is a believer in large-cap IT stocks. This preference for large-caps is reflected in its R-squared, which is the highest in the category and highlights its close correlation with the large-cap dominated BSE IT Index.

Year-to-date through July 15, 2003, as the biggies haven't done much to write home about, this fund has resided at the bottom of the category. But year-on-year, since its inception in 1998, its performance ranking has only slipped from top to the middle of the category.

Franklin Infotech has rewarded investors with the highest returns when its large-cap tech picks bounce back, as it did in the post 9/11 rally and the sharp bounce back during August-December 2002, when the fund outperformed its peer group by a huge margin.

The fund's top five holdings have accounted for an average 70 per cent of assets in trailing one year, This concentration in large-caps, like the 34 per cent holding in Infosys in March 2003 have cost the fund dear when IT stocks have taken a pounding—as in the first half of this year.

The fund is most volatile among its peers. This is reflected in its standard deviation, which is the highest in the category. The fund has however, delivered returns in line with this volatility—giving one of the best risk-adjusted returns (Sharpe ratio) in the category.

Franklin Infotech's tilt towards large-cap technology stocks has kept it away from stocks like Himachal Futuristic and GTL even during the bull run of 2000. Companies like Infosys, Satyam Computer and HCL Technologies have been permanent fixtures in the portfolio. Even the panic sell-off after Infosys's March 2003 results didn't shake its confidence, as its allocation remained intact. That apart, the fund does show an inclination for selective mid-cap stocks. It has hiked exposure in E-Serve International, Infotech Enterprises and Moser Baer.

Franklin Infotech still holds charm, even though it is placed at odds against its peers in the short-run. For technology investors who favour large-cap names, this fund is clearly a fine choice.