IT, Pharma and international mutual fund categories lost 10-20% in 2022

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The winning streak of three most popular sector funds in the last two years – Pharma funds, IT funds and international funds – seems to have ended. The three categories are on the bottom of the return charts this year so far. Sectors funds have attracted many mutual fund investors in the past three years with their phenomenal performance.

IT sector funds have lost around -23.90% in this year so far (YTD), international funds lost -14.55%, and pharma funds -10.87% so far in 2022. Out of the 10 schemes in the IT sector category, six schemes have lost more than 15% in one year. Among a total of 13 pharma funds, 9 schemes have lost over 10% in the last one year.

International funds category is a diverse category with a lot of themes and sectors investing in international markets. However, a few schemes have made more losses than others in this category. For example, PGIM India Emerging Markets Fund lost 36% in one year, Invesco India- Invesco Global Consumer Trends FOF lost 35% in one year and PGIM India Global Equity Opportunities Fund lost 31% in one year.

Market analysts believe that the geo-political situation, the war in Ukraine, US economy crisis, oil prices and end of easy money policy globally has led to the bloodbath in these three categories. Most of the schemes in these sector funds are export-oriented and have taken a bigger hit because of the concerns in global economies. However, fund managers are positive on the IT sector.

“These three sectors have had a great run and now the valuations have re-rated. The valuations in pharma and IT particularly have started looking attractive. However, the pharma category needs more clarity. A lot of things are going on with many pharma companies getting stuck with FDA norms, low visibility in earnings etc. IT on the other hand has a positive outlook. I think there was over-optimism in the sector in the last one year, which is wearing off now. Otherwise Indian IT is a secular story and we are very positive on the sector from a three year standpoint. International funds are taking a beating because of diverse reasons like ESG taking a beating due to the war, the interest rates going up etc. I guess the pain will continue for some more time,” says Sonam Udasi, Senior fund manager, Tata Mutual Fund.

Source: Value Research

Mutual fund advisors say retail investors should not chase returns in sector funds. They say that these schemes go through cycles and can be very risky. Sector and thematic funds are a good bet for evolved investors who understand the particular sector and can stomach a lot of volatility. Hence, even if you are investing in a sector fund, advisors say that these schemes should be a part of your satellite portfolio.

“Sector funds can be considered as a part of the satellite or peripheral portfolio of investors with an aggressive risk profile with a limited weightage of 5 to 10% of the total portfolio since sectoral funds have a highly concentrated portfolio towards the particular sector they are mandated to invest in. Investors need to remember that it is usually a tactical play on the particular sector and should consider these investments as a tactical allocation not a strategic one. You should also remember that a fund manager does take exposure to different sectors in a diversified equity fund. That is a safer way of investing,” says Shifali Satsangee, Founder, Funds Ve’daa, based in Agra.

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