Mutual funds portfolio overlap: How unique are tech funds holdings

The portfolio overlap between five different technology funds are more than 50%. Should you split your hairs in choosing the fund in that case?

Kumar Shankar Roy Nov 12, 2018

Mutual funds portfolio overlap: How unique are tech funds holdingsThere are four main types of sector funds available for investors in India. Sector funds, as you know, are funds which invest in a sector. For example, if you think one sector will do well, you buy a sector fund in a bid to profit from the anticipated gains. The technology sector funds have been darlings of investors for some months, because of their superlative performance.

But, are the five different tech funds really different from each other? The situation reminds us of soaps. Every soap manufacturer claims their product is unique, but the similarity hits you the moment you open the wrapper. It is for investors to understand the sector fund they are buying. Our analysis shows high degrees of portfolio overlaps between tech sector funds. So, basically, 50% of most portfolios are same. Naturally, performance too would be a reflection of the same.

Portfolio overlap
Fund name Franklin India Technology Fund Tata Digital India Fund ICICI Prudential Technology Fund SBI Technology Opportunities Fund Aditya Birla Sun Life Digital India Fund
Aditya Birla Sun Life Digital India Fund 47% 66% 51% 54% 100%
Franklin India Technology Fund 100% 49% 44% 53% 47%
Tata Digital India Fund 49% 100% 61% 61% 66%
ICICI Prudential Technology Fund 44% 61% 100% 53% 51%
SBI Technology Opportunities Fund 53% 61% 53% 100% 54%

Tech tonic

Technology funds have done extremely well in the last one year, especially at a time when broader markets have fallen. You have made anywhere between 20% to 35% in technology/digital funds. But when it comes to selecting funds, you really don’t need to split your hairs. This is because most technology funds are buying the same stuff. Yes.

The portfolio overlap between 18-year old Aditya Birla Sun Life Digital Fund and 3-year Tata Digital India Fund is over 65%. This is because these funds have a high degree of common stocks that also occupy high weight. For instance, the Aditya Birla Sun Life Digital Fund’s top holding is Infosys with 28% allocation, which is very similar to Tata Digital India Fund’s 31% allocation to the same stock – Infosys. Both also have an almost identical allocation to TCS (nearly 12% each). Tech Mahindra is 9-10% allocation for both. Even in the case of HCL Tech., one fund has 9% money in HCL while the other one has 7% odd.

If you do a portfolio analysis of Franklin India Technology Fund with its four peers, you will find portfolio overlap at 45-55% in each case. The portfolio overlap between SBI Technology Opportunities Fund and Tata Digital India Fund is over 60%; this is due to nine common stocks.

Infy, TCS, HCL

Investors often spend a lot of time in choosing funds. But if portfolios are so similar, there is probably no merit in spending so much time in selecting the fund. If the portfolio constituents are so similar, performance will only be a function of different weights. Right? We are observing that in many cases the top-heavy nature of the tech funds is such that 3-4 stocks account for almost 50-60% of the fund’s allocations. Let us explain this with an example.

ICICI Prudential Technology Fund has 10 constituents in its portfolio. The top 5 stocks account for 71% of all its money. Infosys alone is 35%, followed by L&T Infotech 12.2%, Tech Mahindra 9.7%, HCL Tech 9.6% and Cognizant 7.3%.

Now, let us compare this with Franklin India Technology Fund’s 15-constituent portfolio. The top 5 stock accounts for 52% of its allocations. Infosys is 22%, HCL Tech is 9.2%, Tech Mahindra is 8.4%, TCS is 8% and Cognizant is 7.5%.

You can look at all the funds and the results will be quite similar in case of three to four stocks. This shows a few things. One, fund managers think alike. Two, the actual investable universe in technology/digital space is quite small. Three, investors are not really getting diversification if they buy two tech funds. Four, technology funds are quite similar in stock holding so it probably doesn’t matter which one you pick.

RupeeIQ take – Stock selection parameters like daily turnover of stock traded, earnings growth, size of the company, tech prowess and solid financial condition, almost always lead to a handful of eight to 10 stocks in the Indian tech sector. As a result, we are seeing fund managers jostle to take a piece of the same pie. Once investors give money, fund managers have no other way than to allocate the funds in the best stocks in a small investable universe. This leads to concentrated portfolios in tech funds.

Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at

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