IT funds pip consumer, pharma on 1-yr returns

But, these funds have been unable to beat sector benchmark in 1-yr period

Mutual fund schemes that investing in the information technology (IT) sector have sprung a surprise on the performance charts. Technology funds have emerged the best performer across categories in a year as on Wednesday, toppling the recent winners — schemes investing in pharmaceutical and consumer goods sectors—from the top returns league. Fund managers said the weaker rupee, which has driven up shares of technology companies, has helped the fund fetch better returns. But this category has underperformed their benchmark index.    

Technology funds, in the one-year period ended July 30, have given average returns of 31 per cent, compared with the 30 per cent given by the fast-moving consumer goods (FMCG) sector funds and 22 per cent average returns given by the pharma funds. Their benchmark – the BSE IT index, however, rose close to 38 per cent during the period, according to fund tracker Value Research.

“The currency depreciation has helped these stocks the most. In the last two years, we have seen the rupee move from Rs 45 against the dollar to Rs 60,” said Sankaran Naren, chief investment officer at ICICI Prudential Asset Management Company.

Four of the five technology-focussed funds feature among the top 10 performing mutual fund schemes, according to data from Value Research. SBI IT has been the best performing fund with returns of around 36 per cent. Other funds, which are part of the top 10, are Franklin Infotech, Birla Sun Life New Millennium and ICICI Prudential Technology with one-year returns of 33 per cent, 30 per cent and 29 per cent, respectively.

But these funds remain laggards if their three, five and 10-year performance is considered. “IT funds have done well because of the better earnings numbers of companies in the sector, recovery in the US economy leading to volume growth and the rupee decline,” said Navneet Munot, chief investment officer at SBI Mutual Fund.  Fund managers also attributed the funds’ good performance to the performance of the sector heavyweights like Infosys, Tata Consultancy Services and HCL Technologies.

Infosys accounts for a little more than a quarter of the corpus of each of these funds. Fund managers said the funds were skewed more towards large-caps than mid-caps. “If investors have a view on the sector, they would straightaway go for the stocks and particularly the large-cap stocks. Why, then would the investor want to pay 2.5-3 per cent as expenses to the fund house for managing the fund?,” asked an independent distributor.

Investors might have missed the bus on these funds, said analysts. “Sector funds have not attracted significant investments and the assets under management under these funds have been very low,” said Hiren Dhakan, associate fund manager with Bonanza Portfolio Services. Sector funds broadly have lost their charm post the decline in the equity markets. “The (technology) sector may continue to do well as the sector has been a beneficiary of the falling rupee,” said Munot.

The only hurdle to this could come in the form of an unfavourable US immigration bill, he added.