What is the short-term future of Franklin Internet Opportunities Fund?
While it has been a long while since anyone talked excitedly about B2B, B2C, C2C and various other kinds of X2X portals, Franklin Internet Opportunities Fund (FIOF) continues to carry the Internet flag. This fund was launched to reap the rewards of investing in companies that would benefit from the dramatic growth of the Internet. Therefore, unlike pure technology offerings, this fund's investment universe is much wider. Besides obvious areas like e-commerce companies dotcoms (if there are any that still exist) and Internet Service Providers, the fund can invest in companies that use the Internet for business growth. This actually gives it a wide ambit: for example, it can-and does-invest in banks that are using the internet heavily to expand customer service.
Since most pure Internet companies came and went at the speed of the Internet, FIOF's portfolio largely consists such companies along with mainstream technology stocks like Infosys, HCL Technologies and Satyam Computer. Apart from technology, FIOF's has financial services, FMCG, services and energy sectors. It is this diversification that has helped it survive the bears with smaller losses than its peers. In the tech-led collapse of 2000-2001, FIOF lost 55 per cent, which was better than the average tech fund's 66 per cent and BSE IT Index's 75 per cent. However, during bull phases, pure technology portfolios like the erstwhile Birla IT and Franklin Infotech performed much better than FIOF due to the latter's lower technology holdings. Another reason for underperformance in the bull phases is that FIOF is biased towards large-cap technology stocks. In recent times, the best performing technology funds have made their money in mid-cap stocks.
As technology and telecom stocks now make up 62 per cent of FIOF's holdings, its fortunes will continue to be guided by the overall growth of the tech and telecom sectors. Infosys and Bharti Tele-Ventures are its top two holdings. A lot will also depend on its non-tech holdings spread elsewhere. The fund has done well out of holdings like Bharat Petroleum and GAIL where it moved in earlier than many others. Though banking has been its second favorite hunting ground, the fund stayed away from the PSU bank rally during the first quarter of 2003. It remains committed to its long-time positions in ICICI Bank and HDFC Bank. Franklin Internet Opportunities is well positioned to benefit from any rally in the broad markets, as is evident from its recent gains. Since the Internet story is over, it is best to see FIOF as a specialty fund that is essentially a tech-leaning equity fund.