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Extreme Measures

This fund is a blockbuster in good times. But it has yet learn the way to preserve the gains in bad times. Investors seeking aggressive gains from technology and who can withstand sizable losses may like this fund

High returns in good times but a free fall when markets tank. This is what we had said in our previous review of the fund in January.

This second-largest technology fund has proven us right once again during the recent crash.

In the current calendar year, till May 10, Prudential ICICI Technology was the hottest fund with returns of 23.88 per cent. Then came the crash, which took the wind out of this fund.

Between May 10 and June 30, the fund slipped a massive 23.60 per cent, the most by any technology fund.

Consequently, its year-to-date return of negative 5.35 per cent till June 30 made it the worst fund in the category.

Another similar slip could be traced back to the fund's performance two years back. It exploited the bull-run and surged 130 per cent to become the only fund to beat the BSE IT Index between May 27, 2003 and January 5, 2004.

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. Prudential ICICI Technology may be the king of good times but it needs to do a much better job in protecting returns.

This fund is aggressive and extremely volatile (at 7.59, its standard deviation is highest in the category). And with huge allocation to relatively riskier mid- and small-cap stocks, the fund is unlikely to improve on this front.

But this is what the fund is good at - it knows how to benefit from these stocks. The fund started to invest in smaller companies in 2003 in a big way.

Obviously, it coincided with the rally in the segment that year and it ended 2003 up 65.29 per cent.

The fund maintains a well-diversified portfolio. It spreads the assets over 25-30 stocks and limits exposure to individual stocks at around 10 per cent (this has increased in the recent times though).

Overall, Prudential ICICI Technology is structured to deliver surprises. It has indeed surprised investors through exceptional returns in a booming market. Now, investors hope that the fund management would do something to limit the surprise during tough times.