The fund managers' sudden penchant for diversification is now apparent with a change of guard across most portfolios. In a coup of sorts, cyclical stocks are fast replacing technology heavyweights as equity funds finally diversify in their effort to keep their head above water. For a sample of shift from myopic to broad investment strategy, consider this.
April 2000: Even as the tech-fuelled rally has started to ebb, the top 10 stocks across diversified equity funds belong to the technology sector and make up for over 54% of the total asset base. Fund managers and investors believe that tech stocks have halted for a brief hiatus before resuming their north bound journey. The big guns include Infosys, Zee, SSI, Satyam, HFCL and Visualsoft Technologies.
April 2001: It's a stark picture as tech concentration is reduced to rubble, washed away by relentless hammering and selling pressure. Though there are still some isolated tech holdings, the focus is now on quality and, diversification. The top ten investments now just have three software stocks - Infosys, HCL Tech and Satyam Computer with a weight just above 10%. Stocks like Reliance Industries, Cipla, Larsen & Toubro, ITC, Bhel and the two petrochemical majors -- BPCL and HPCL have distinctly displaced the tech juggernaut. The exposure to top ten among diversified equity funds is also down to just 30%, which reflects that even stock-specific concentration is down.
Sure, diversification, the boring strategy but the basic tenet of investment is back in favour with fund managers. The community seems to have realised that fund investment is not about short-term gains but for long-term sustained performance. Yet, it is still early days to confirm that the new order will stay. For, the current round may just be a fad and could fade away the moment some other sector emerges with glittering returns. It is here that fund managers have to stay on track and differentiate their strategy from that of a day trader. Else, equity funds could again be mired in deep losses.