For technology funds, the wheel has come full circle. There was a time when equity funds tried to milk the technology hysteria by converting their diversified funds into technology sector funds. Now, it's time for the journey back. In August 2003, Birla IT broadened its mandate and now its Chola Freedom Technology's turn.
With the opinion of the day being that the universe of technology stocks is limited and lack of diversification exposes the investors in such funds to higher risks, Cholamandalam Mutual Fund plans to reorient its tech fund as "Chola Opportunities Fund". Apart from technology, the new orientation would also be towards companies belonging to sectors where India has strengths in global markets such as pharmaceuticals, textiles, gems and jewellery, and auto-ancillaries. Chola Opportunities will now invest between 80 to 100 per cent in equity with the rest in debt and money market instruments.
The AMC is of the view that this diversification will enable the fund to follow what it calls a blend of the growth and value styles of investing, and attempt to gain from market moves as well as the promise of some undervalued stocks.
According to Sashi Krishnan, Chief Investment Officer, Cholamandalam AMC, "The decision to review the technology fund is driven by the aim to provide investors a chance to benefit from developments in a number of sectors other than just technology."
The Chola Opportunities Fund will focus on sectors expected to outperform in the long term and thus will seek rapid appreciation in the unit prices. At the same time, it will maintain adequate diversification across these categories to minimise portfolio risk.
Birla IT too has transformed itself into Birla India Opportunities Fund with somewhat similar focus. However, while Birla IT was a star performer in its category, Chola Freedom Technology was an average performer. Initially born as Chola Freedom Growth Fund, a diversified equity fund in the year 1998, it changed guard in early 2000 to become a pure technology fund.
This re-orientation gave the much-needed boost to the fund's unit capital, which increased from next to nothing to Rs 57 crore by September 2000. However, the sad state of tech stocks during this time has meant that for a larger part of its tenure, the fund has had a very high cash position, which accounted for a third of the corpus.
While this did help it cushion the fall during volatile periods, but has also seen it lag behind its peers during the market rallies. During this time the fund has seen investors drift away and its corpus is down to Rs 15 crore.
Another tech fund, IL&FS eCOM has also broadened its investment objective. This scheme will now be called "IL&FS Global India Fund". It would seek to generate capital appreciation by investing in companies that are/have the potential to emerge as global players in their respective sectors: their competitiveness driven by one or more of the following factors: 1. Availability of large resources for manufacture and services. 2. Low labour costs for providing services and manufacture of goods. 3. Availability of intellectual capital for providing services, research, etc.
The new benchmark index for the IL&FS Global India Fund will be S&P CNX 500. These changes will come into effect from January 12, 2004.