Learning Bit By Bit

Besides the normal sector risk, Magnum IT also carries a significant liquidity risk. Yet, aggressive investors would not mind had it delivered impressively. Unfortunately, that has not been the case. The timing of Magnum IT’s launch was perfect — July 1999. For the December quarter that year, it delivered a stupendous 106 per cent. After that its performance was far from impressive. In February 2005, Sandip Sabhwarwal took over the fund and radically altered the portfolio. The predominantly large-cap portfolio made way for small caps. From January to November 2005, the small cap exposure rose from 12 per cent to 57.41 per cent. Simultaneously, large caps decreased from 70 per cent in January that year to 40 per cent in November. The result: It was the best performer amongst tech funds – a 15 per cent lead over the category average.

Sabhwaral’s exit in November 2005 hit the fund. In 2006, it managed to do better than the category but far from trounced the competition. In 2007, it delivered a mediocre 6.41 per cent against the category’s 11.19 per cent.

The fund is an aggressive bet without the daring returns that tend to go with such risk. With a very concentrated portfolio that averages just 16 stocks, the fund takes strong positions in its top holdings. So almost 40 per cent of the fund’s allocation goes to Infotech Enterprises, Tanla Solutions and Tulip IT Services, while exposure to Infosys, Satyam Computers, TCS and HCL Technologies is at 28 per cent. Mid- and small-caps corner 71 per cent of the portfolio. Lack of stability at the helm has not helped. The fund has seen 7 fund managers in its 9-year existence. The current fund manager took over in July 2007. Avoid this fund till he proves himself.