In other words, most fund managers failed to anticipate the ensuing sharp down in technology stocks. The reason for this steady performance of a couple of funds is not hard to see. Fund managers, who did beat the Sensex managed because they held on to a diversified portfolio and resisted the temptation to go overboard on tech stocks or any other sectors or stock. For instance, the average tech holding in the top performing equity fund for 2001, Templeton India Growth Fund was only 24 per cent in the last one year. On the contrary, the big guns of 1999 like Magnum Multiplier Plus, Alliance Equity and Birla Advantage maintained their concentrated investments, with more than 50 per cent of their assets locked in the volatile sector.
Diversification works since market's preference for sectors rotate.
Thus, a few sectors or stocks cannot perpetually dominate investors' preference. Worse, they go out of favour abruptly without giving an opportunity to exit. All Rights Reserved.