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Too Concentrated

A portfolio spread over just twelve stocks, with five of them accounting for over 85 per cent of the assets makes it too concentrated. But here, you can buy most tech majors just for Rs 5,000

This fund looks more like a stock than a fund at the moment. A portfolio spread over just twelve stocks in January 2006, with five of them accounting for over 85 per cent of the assets may be a little too much for even the most adventurous investors. However, quality large-caps oriented portfolio and management depth are this fund's saving grace.

The fund has always believed that around 15 quality stocks were enough to generate consistent returns. But since the start of last year, it further concentrated its portfolio to around 10 stocks. Among stocks, the fund has been a great fan of Infosys. Last year, its conviction in the stock increased substantially.

However, this increased faith in individual stocks has not proved rewarding. Last year, Franklin Infotech registered its worst ever performance vis-à-vis its peers--the fund gained 43.75 per cent to miss the category average return of 50.32 per cent and was ranked sixth in the seven-fund category of technology funds.

Barring 2004, the fund's performance has been average. 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. 2004 proved lucky. It signed off 2004 as the hottest tech fund with a return of over 30 per cent. 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.

Franklin Infotech has always believed that big companies are the only safe vehicles to sail through the volatile tech sector. However, huge tilt towards individual stocks is a concern here. Take for example the first half of 2003 when the fund had nearly a quarter of its portfolio parked in Infosys. The fund lagged behind average peers because the Infosys stock price crashed in April.

Volatility is another concern here. The fund has always been more volatile than average peers and an ultra concentrated portfolio is not going to help the fund manager curb it. Go for this fund if you can withstand huge risk that come with a concentrated portfolio. However, given a quality orientation and management depth of the fund house, this fund still has its own charm and can be a handy tech fund to have for the long-term.