Birla IT Fund: Long on call - Views on News from Equitymaster

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Birla IT Fund: Long on call

May 12, 2001

Birla IT Fund has performed dismally over the past 12 months (down 42%), in line with other technology funds. The funds current net asset value (NAV) is just below Rs 9.0.

The chart above reveals the amazing turnaround that has taken place in the investment philosophy of Birla IT fund. Being a technology fund, Birla IT should be having a significant exposure to technology sector. However, its exposure to IT has slumped from 78% in the month of February 2001 to 33% in March 2001. Where is the money invested?

Birla IT Fundís asset allocation in March 2001 also needs to be highlighted. Typically a growth fund has an equity allocation of over 80% and the rest is invested in fixed income instruments and cash. However Birla IT seems to have turned that on its head with a 64% exposure in the call money market, 33% in equities and 3% in cash/others.

Two things need to be noted from the developments in Birla IT's asset allocation. First, it reduced its exposure to the technology stocks just before the 'scam' took its toll on TMT valuations. Therefore, its unit holders have no reason to complain. Two, this also shows that technology funds may not be that good an investment idea, given their high level of exposure to just one sector. If, let's say the Birla IT fund, had been a diversified equity fund, it could have invested in the old economy stocks, which have done well over the last month or so. That way the fund would have maximised returns, rather than just attempting to preserve capital.


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