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King of Good Times

It earns huge returns in favourable times but is yet to master the art of protecting those returns in bad times.

This fund is aggressive, extremely volatile (at 7.64 its standard deviation is highest in the category), and maintains a well-diversified portfolio. Overall, Prudential ICICI Technology is one of the riskiest funds in the category but has the firepower to deliver surprising returns. Those willing to play a long innings are likely to score a win here.

After a setback in Year 2004 when its 17.08 per cent return placed it at the bottom of the category, the fund staged a strong comeback last year-its 53.34 per cent gain was better than average peer's 50.32 per cent rise. Prudential ICICI Technology has prospered with a mid- and small-caps led portfolio. Its liking for these capitalizations coincided with the rally in the segment in 2003. Picks like Tata Telecom, Cranes Software, Blue Star Infotech and Bharat Electronics earned handsomely for the fund and it ended 65.29 per cent up in 2003. However, this strategy failed to click in 2004 as its mid-cap holdings, including I-Flex Solutions, lost heavily. Last year though, the fund's faith in the stocks proved rewarding once again. The fund house says it focuses on companies, which offered superior business model and try to identify them ahead of the market. "Now, when the street is getting convinced about them, we are getting returns," says Nilesh Shah, CIO, Prudential ICICI AMC.

This fund is the king of good times but needs to do a much better job in protecting returns. Take for example its performance between May 27, 2003 and January 5, 2004. It exploited the bull-run and surged 130 per cent to become the only fund to beat the BSE IT Index during the period. However when the equity markets turned its tail in January 2004, the fund had a free fall-it lost 14 per cent in the first half of 2004. Huge exposure to mid- and small-cap stocks (an average 59 per cent between January and June 2004) dragged the fund down.

The fund's diversity deserves praise. It spreads the portfolio over 25 to 30 stocks and limits exposure to individual stocks to around 10 per cent. The fund house blames this limitation for underperformance. "But it has paid us well over a longer period of time with lower risk and better return," says Shah. Overall, the fund is designed to travel on a bumpy path but has the potential to throw surprises. Good for bold investors.