Prudential ICICI Technology fund was the star of the last year's bull-run as it gained 130 per cent between May 27, 2003 and January 5, 2004 - the only fund to beat the BSE IT Index during the period. But after the excitement was over it was unable to protect its returns in declining markets - its 14 per cent loss in the first half of 2004 is the worst in the category. The major reason for this contrasting performance has been the excessive dominance of high-risk stocks. Nearly one-third of the fund's portfolio comprises of mid-caps and another one-third is invested in small caps.
Despite these risky bets, the fund isn't so volatile. Its standard deviation is in line with the category average. This is largely because Prudential ICICI Technology had the most diversified portfolio in the category. Top-five holding here account for just 43 per cent of the portfolio.
The fund hasn't been so mid-cap lover form the very beginning. But once it turned towards mid-caps in August 2002, Prudential ICICI Technology's fortunes took a U-turn. This strategy coincided with the rally in mid-caps and the fund's return landed in the upper half through 2002 and 2003. Most of its picks like Cranes Software, Tata Telecom, Blue Star Infotech and Bharat Electronics made tremendous gain last year, thus propelling the fund's return.
However, what worked then hasn't worked in 2004. Most of the fund's mid-cap holdings have declined in value. One of the major draggers has been I-Flex Solutions, whose share price dropped 30 per cent in the first three months of this year. The fund had investment of over 7 per cent of its total assets in that stock, which the fund sold it off in April 2004. Though few mid-caps like E-Serve had gained this year but the fund has low exposure to it thus nullifying the gains.
The fund has also invested in large-caps like Infosys, Satyam and HCL technologies but they have rarely formed the core. Their combined exposure has been under 25 per cent. Moreover, in recent months, the fund is consistently trimming the exposure to these stocks.
Prudential ICICI Technology Fund has generated superlative gains on the back of some risky takes. But has not protected the downside risk in the short-run. Hence, only aggressive investors should consider this fund and that too for long-term.