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Growth continues to elude growth funds - Views on News from Equitymaster
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  • May 29, 2000

    Growth continues to elude growth funds

    The meltdown in the stock markets over the past few months has had its effect on growth funds. And supposedly diversified growth funds that have turned quasi-tech funds have been hit a lot more harder.

    Open-ended Growth Schemes NAV
    UTI Sector Fund - Petroleum 11.8 3.3% 4.2% 0.0% 17.2%
    GIC Growth Plus II 17.3 1.4% -4.4% 92.0% 10.9%
    Taurus Starshare 8.4 0.6% -6.7% 24.6% -3.8%
    Alliance Basic Ind. Fund (Gr) 8.0 -0.5% -5.7% 0.0% -10.5%
    Zurich India Capital Builder 11.7 -1.1% -4.0% 1.5% 3.5%
    K MNC 9.4 -1.3% 0.0% 0.0% -0.1%
    Magnum Sector Funds - Contra 8.1 -1.5% -2.2% 0.0% -20.0%
    IL&FS Growth & Value (Ann Div) 11.5 -1.6% -6.3% 0.0% 17.1%
    Mastergrowth Unit Scheme 1993 15.9 -1.7% -8.0% 5.7% 7.6%
    Templeton Growth Fund 12.1 -1.7% -4.0% 57.9% 8.6%
    Canbonus 9.3 -2.0% -11.8% -13.2% 1.5%
    GIC Fortune 1994 6.1 -2.4% -6.6% -2.4% -8.1%
    IL&FS Growth & Value Fund (Gr) 12.9 -2.8% -12.4% 0.0% 6.5%
    Zurich India Top 200 15.1 -3.0% -6.5% 3.9% 18.1%
    Mastershare Plus 1991 20.1 -3.1% -5.3% -7.0% 4.0%
    DSP ML Equity Fund 17.7 -3.5% -13.3% 17.0% 29.8%
    Libra Leap 17.6 -3.5% -14.4% 86.5% 31.3%
    Kothari Pioneer Prima Fund (Gr) 21.0 -3.7% -12.3% 45.1% 12.2%
    GIC D'MAT 7.9 -3.8% -7.2% 0.0% -31.9%
    Reliance Vision Fund 18.2 -3.8% -8.5% 32.5% 13.4%
    DSP ML Opportunities (Gr) 8.5 -4.0% 0.0% 0.0% -4.0%
    Grandmaster 1993 8.3 -4.0% -11.5% -20.5% -3.8%
    Mastergain 1992 10.4 -4.2% -6.2% -4.4% 2.1%
    Birla MNC Fund (Growth) 28.0 -4.4% -5.9% 84.4% 20.3%
    Primary Equity Fund 15.4 -4.5% -9.5% 19.2% 8.8%
    UTI Sector Fund - Brand Value 8.2 -4.5% -14.3% 0.0% -14.6%
    Sundaram Growth Fund 12.8 -4.6% -12.5% 27.6% 22.0%
    Zurich India Equity (Gr) 19.1 -4.7% -8.9% 51.5% 13.9%
    Kothari Pioneer Bluechip (Gr) 21.4 -5.0% -10.4% 60.2% 29.8%
    Sun F & C Value Fund (Gr) 20.2 -5.1% -11.6% 21.4% 32.2%
    Pru ICICI Growth Plan (Gr) 20.4 -5.1% -16.5% 47.6% 44.4%
    Magnum Equity Fund 13.5 -5.3% -17.8% 48.6% 15.3%
    UGS 10000 10.7 -6.2% -8.2% -14.0% 4.5%
    Alliance Buy India Fund Fund (Gr) 5.8 -6.3% -15.3% 0.0% -42.0%
    Kothari Pioneer Prima Plus (Gr) 21.8 -6.4% -11.0% 56.0% 16.9%
    Magnum Global Fund 10.6 -6.6% -17.3% 26.5% 3.1%
    Magnum Multiplier Plus 1993 16.9 -7.6% -23.7% 23.6% 9.0%
    Tata Life Sc & Tech. Fund (I) 11.3 -7.9% -11.9% 0.0% 24.9%
    UTI Sector Fund - Service Sector 26.2 -8.1% -17.1% 0.0% 162.1%
    Tata Pure Equity Fund 11.6 -8.2% -13.1% 46.4% 45.9%
    K 30 17.4 -8.6% -15.8% 38.1% 43.4%
    Alliance Equity Fund (Gr) 31.8 -8.7% -16.1% 89.9% 93.1%
    Birla Advantage Fund 37.4 -9.1% -13.4% 83.1% 35.3%
    JM Equity Fund (Gr) 9.7 -9.5% -21.7% -11.2% 0.1%
    Canexpo 17.0 -9.8% -16.9% 38.8% 10.2%
    ING Growth Portfolio (Gr.) 15.2 -10.0% -27.1% 54.1% 52.0%

    The huge correction in technology, media, telecom (TMT) stocks has pulled down the net asset values (NAVs) of technology funds. But that is understandable, and investors canít really fault the fund managers. A technology fund will invest in TMT stocks and investing anywhere other these stocks will defeat the very objective of a technology fund. But why should the fall in TMT stocks pull down growth funds. Arenít growth funds supposed to be diversified enough to offer investors a hedge against the meltdown in a couple of sectors? Isnít diversification supposed to be the biggest ace in a fund managerís arsenal to hedge against a falling market? It is meant to be, but unfortunately it isnít.

    In their enthusiasm to duplicate last yearís performance, fund managers have been guilty of taking an unwarranted exposure to TMT stocks. In many cases as much as half of the fundís net assets are locked in TMT stocks. And even within the TMT sectors there has been poor diversification, with a handful of stocks (Satyam, Infosys, Zee Tele, Global Tele) accounting for a chunk of TMT investments. So a crash in the prices of these stocks has pulled down the fund significantly.

    However, industry sources are divided on whether it is the fund manager at fault or the investor. In an interview to personalfn.com, Mr S. V. Prasad (President, Zurich Asset Management (I) P. Ltd.) remarked that taking such a large exposure to software stocks is imprudent and could prove disastrous in the long run (as is more than evident now). However, in another interview to personalfn.com, A. P. Kurian (Chairman, Association of Mutual Funds in India) held the view that being a growth fund with capital appreciation as its objective, a fund manager could invest in stocks regardless of the sector to realise the investment objective and the investor must know what he is getting into before he invests in such a fund.

    So who is at fault? Wish there was a third umpire!



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