A depreciating rupee and better than expected IT results have led to a huge rally in the stocks of IT companies in 2018. There are only five mutual funds which are wholly devoted to this sector – Tata Digital India Fund, ICICI Prudential Technology Fund, Aditya Birla Sun Life Digital India Fund, Franklin India Technology Fund and SBI Technology Opportunities Fund. Another player lies waiting in the wings. IIFL AMC has filed papers for a US Technology Fund.
All five of them have rallied strongly over the past year but the gap between them is equally significant. On the one hand, Tata Digital India Fund has delivered 57.8%, and on the other, Franklin has given only 34.4%. In other words, Franklin has delivered only 60% of the value that Tata has delivered to investors, despite being invested in the same sector.
Here is how their portfolios look:
|Franklin India Technology Fund||Tata Digital India Fund|
|HCL Tech||9.1%||NIIT Technologies||6.6%|
|Franklin Technology Fund||8.5%||Tata Elexi||6.1%|
Data as on 16/08/2018; Source: Value Research
Tata has taken a larger bet of Infosys and TCS combined (44.7% of portfolio) compared to Franklin (33.2% of portfolio) and that bet seems to have paid off with TCS rallying strongly this year. On the other hand, Franklin also invests 8.5% of its assets in US tech stocks – a position that doesn’t seem to have made much difference.
Tata Digital India Fund was only launched in December 2015 and so a long-term return comparison is not possible. However, it is important to note that Franklin has delivered just 9.75% CAGR over the past three years and 14.8% over the past five years. ICICI Prudential Technology Fund managed 10.7% and 20.4% respectively over the same periods. Aditya Birla Birla Sun Life Digital India Fund and SBI Technology Opportunities Fund also outperformed Franklin over a five-year time horizon
Past performance is no guide to the future. However, investors should note what the data is saying – fund selection matters enormously.