Do you wish to add a touch of technology to your portfolio but are afraid of the risks? Franklin Internet Opportunities may just be what you are looking for.
Unlike a pure tech scheme, this fund's investment universe is much wider. Besides obvious areas like e-commerce, dot-coms and Internet service providers, it can invest in companies that use Internet for business growth like banks and services sector companies. This diversification has helped it guard losses in volatile times and emerge as a top performer in recent times.
As this fund was launched at the peak of the tech-led bull-run in February 2000, it has mostly seen falling markets. Thus, for the first year, its focus was largely on curtailing losses, a job it has done well. Apart from investments outside technology stocks, the fund's higher cash component compared to its peers kept it afloat during 2000. This also helped it lose less during the not-so-good year of 2001 and ended that year at the top of the heap.
Franklin Internet Opportunities Fund's exposure to technology stocks is at 62 per cent, and within that, it has largely stuck to quality large-cap stocks with Infosys being its top holding (average 17.5 per cent exposure). That apart, the fund has mostly avoided active churning of its portfolio. Another 20 per cent is in bank stocks like ICICI Bank and HDFC Bank and the rest is spread over services and energy sector stocks. The fund has also invested in ADRs/GDRs of Wipro, Rediff.com India, VSNL and HDFC Bank.
Though this diversification may have reduced the downside risk, this resulted in short-term under-performance during tech-led rallies. For instance post-9/11, when tech stocks made smart gains and the category gained 75 per cent till Budget 2002, Franklin Internet Opportunities gained 64 per cent. Again, in the year-end rally of 2002, the fund's gain was relatively less -- 17 per cent against the category's 21 per cent gain and the BSE IT Index's 45 per cent rise. Thus, through 2002, the fund landed in the bottom half of the category.
However, in 2003, the fund has once again acquired the top slot in the category with a year-to-date return of 47.82 per cent against the category's 21.38 per cent gain, as on November 18, 2003. The fund's limited loss in the first five months of 2003 – a hostile period for tech-stocks, when Infosys and Digital fell freely and a reasonable gain in the recent broad-based rally were largely responsible for this. Some of the fund's top holdings like – Bharti Tele-Ventures, i-Flex, ICICI Bank, HDFC Bank and BPCL – have made smart gains in 2003.
Overall, it's a good fund for those wishing to add a touch of technology to their portfolio. The fund should, however, be considered with caution as both the upside and downside risk are high here. This fund is only recommended to those who have an understanding of the technology sector and can weather some volatility and surprises along the way.