Reducing concentration in top five holdings is a welcome step.
Birla Sun Life New Millennium (earlier Alliance New Millennium) seems to have settled down well in its new fund house. As on June 30 this year, the fund has delivered 0.73 per cent return. This may not sound any significant performance but it is much better than the category's -1.76 per cent return so far this year.
The transition to new fund house was not smooth though. Birla Sun Life New Millennium had its share of troubles in the very first quarter of existence under the Birla Sun Life Mutual Fund when it gained only 8.76 per cent to miss the average peer's return (15.89 per cent) by a huge margin and 19.76 per cent gain of benchmark, BSE IT index, by even greater margin. In our previous review we had urged investors not to panic and take hasty decision, as the underperformance is not a result of any significant change brought by the new fund managers. In the subsequent months, the fund regained lost glory to deliver better than an average peers returns.
The fund had a good run till the third quarter of 2005. It was the best performing fund till September end with a return of 40.54 per cent. However, a poor show in last quarter pushed it to fourth rank last year.
Diversification is one thing that the new management is taking very seriously. Under Birla Sun Life flag, the portfolio has been spread over close to 20 stocks from the earlier 10-15 stocks which was a norm. Additionally, allocation to individual stocks has been cut drastically. Top five holdings normally used to account for more than 60 per cent of the fund assets. As on June 30, 2006, they were just 45.96 per cent of the fund's portfolio.
This is a welcome step, as a concentrated sector fund has the potential to deliver some nasty blows to the investors. The one concern here is increasing exposure to small-cap tech stocks.
The fund had a woeful beginning in early 2000. The poor show continued through 2001 and 2002, as time was not favourable to tech stocks and therefore funds. Within tech funds, this fund was among the worst performers. But from there, its fortunes turned for the better. However, with the change of management, the fund's past has no significance. Investors should concentrate on how well the new management manages the fund.
Overall, the fund's comeback is encouraging. The few changes that it has undergone make it one of the better technology funds around.