Pioneer ITI Prima Fund: Hold

Recommendation: Hold

Aarati Krishnan

INVESTORS in the Pioneer ITI Prima Fund may hold their investments for now.

The fund does not have as consistent a track record as Bluechip Fund, also from Pioneer ITI Mutual Fund. But this is understandable given the Prima Funds focus on small and mid-cap stocks, which are usually more volatile than large-cap stocks.

Indeed the fund's NAV has been quite volatile, outperforming the indices by a large margin in the bull markets of 1998 and 1999, but losing more value than the narrow market index in the bear markets of 2000. Given that it is a small/mid-cap fund, Pioneer ITI Prima has fared quite well in 2001.

The NAV, losing around 15 per cent over the year, has declined much less than the narrow market indices. This is notable, considering that small and mid-cap stocks have taken a battering in this period.

Suitability: The small/mid-cap focus makes for a higher than normal risk profile for this fund. Only the more aggressive investors in equities should stay with the fund. With its tilt towards cyclicals and small/mid-cap stocks, the fund offers a good diversification opportunity for aggressive investors.

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Portfolio overview: The following features emerge from a study of the portfolio over the past six months:

*The fund is actively managed with substantial changes in its top holdings from month to month. The portfolio turnover has been consistently higher than other growth funds in the Pioneer ITI stables. This could be because the small/mid cap focus necessitates active profit-booking and portfolio change.

*The sectoral allocations have changed substantially from month to month. The fund appears to have changed its stance on IT stocks at least twice over the past six-month period. The IT exposure, which was a low 11 per cent in April 2001, climbed to 17 per cent the very next month before falling back to 12 per cent in July 2001. The exposure was once again pegged up to 20 per cent in August 2001.

*The cash position also saw dramatic swings over this period, rising from just 5 per cent in May to over 26 per cent by July. Over the past few months, though, the fund has re-invested surplus cash, with the cash balance falling to 9 per cent of assets by September. The substantial cash position could be one of the reasons for the relatively good performance over the past six months.

*During this period the fund appears to have made a conscious move away from small/mid-cap IT stocks to the larger capitalisation stocks in the sector. Holdings such as Aztec Software and Sierra Optima have given place to Satyam Computers, Hughes Software and HCL Technologies.

*The fund has consistently maintained low exposures to pharma and FMCG stocks. This is in contrast to the strategy practised by most equity funds during this period. The FMCG allocation, which was a mere 1 per cent in April, inched up to 5 per cent by September.

*Exposure to pharma stocks has consistently hovered between 4 and 6 per cent. Further, the fund has largely kept to MNC pharma stocks such as Pfizer and Hoechst Marion over this period. Given the sharp uptrend in Indian pharma stocks such as Cipla during this period, this is likely to have resulted in a few missed opportunities.

*The portfolio has consistently maintained a higher weightage to cyclical stocks than to growth stocks. Starting out with just a 18 per cent weight in IT, pharma and FMCG stocks in April, the total weight in growth stocks has climbed in the recent months to around 27 per cent. But cyclicals continue to dominate the portfolio.

Fund facts: Pioneer ITI Prima Fund was launched in December 1993. The fund has consistently stuck to a small/mid-cap focus since inception. The fund is managed by Mr K. N. Sivasubramaniam. It stipulates a maximum entry load of 2 per cent and its current NAV hovers at Rs 16.50 per unit. The fund offers both a growth and a dividend option and has declared three dividends totalling to Rs 8.50 per unit since 1999. The fund is relatively small, managing Rs 18 crore in net assets as at end-September.