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Large-cap Admirer

This fund is reaping the benefits of sticking to a quality portfolio. In the short-term Franklin Infotech may give you some sleepless nights but over the long-run, it could be a handy tech fund to have

After a series of disappointing years, Franklin Infotech signed off 2004 as the hottest tech fund of the year with a return of over 30 per cent. Except for a marginal underperformance in the third quarter, the fund put up a consistent show throughout the year to beat the category averages. A judicious mix of large and mid-cap stocks during the first half of 2004 and a large-cap dominated portfolio later helped the fund generate decent returns.

Picks including E-Serve International (the fund existed from the stock in July 2004), Wipro, Infosys etc proved rewarding. The fund latched on to the TCS stocks during and after the IPO-at August end, TCS was in the top five holdings of Franklin Infotech commanding nearly 10 per cent of assets. Since then, the scrip has appreciated more than 35 per cent.

Historically, the fund had been an average performer. From 2000 to 2002, it managed to closely follow its average peers. However in 2003, the fund failed to capitalise on the mid-cap rally despite having a good exposure (an average 37 per cent) to them--it finished in the bottom quartile of the category with a return of 37.43 per cent.

This second largest tech fund believes that if you want to sail through the volatile tech sector, big companies are the only safe vehicles. When it comes to big companies, the fund manager seems to have developed a special liking for Infosys--on many occasions, the stock has made one third of the portfolio.

This huge tilt towards one stock is a concern here. In fact this strategy cost the fund heavily in the first half of 2003, when Infosys share price crashed. However again the fund manager's great faith in the stock and buy and hold strategy worked in favour of the fund-it gained the most in the later half of 2003 when Infosys revised its revenue guidance upwards.

Volatility is another concern here and concentration to Infosys and a portfolio spread over just 15-18 stocks is not going to help the fund manager curb it. But then risk and volatility is part and parcel of any sectoral fund. A large-cap dominated portfolio makes this fund special.