Is Baroda Sector Focus Fund a diversified scheme?

Despite its moniker, the fund may do better by switching between sectors. But that makes it an equity diversified fund

Baroda Pioneer Mutual Fund has filed its draft offer document with the Securities and Exchange Board of India (SEBI) to launch an open-ended 'Baroda Pioneer Sector Focus Fund'. The scheme will be benchmarked against the S&P CNX Nifty.
The fund will have exposure to six sectors with 25% of net assets to each sector at any given point of time depending upon their growth prospects and valuation. The scheme has provided an indicative list of 15 sectors which it may invest in.

These sectors include automobiles, cement & cement products, construction, consumer goods, energy, financial services, industrial manufacturing, industrial capital goods, information technology, media & entertainment, metals, pharma, services, textiles and telecom. Baroda Mutual Fund manages a corpus of Rs3,954 crore as on July 2010 and has 15 schemes in its basket.

Is it worth investing in this fund? Unfortunately, sector funds are not a good idea. They are launched when a particular sector is doing well, which is when prices have already run up. The subsequent stock price performance is usually lacklustre. We analysed the performance of 49 equity sector funds. Over a one-year period, 40 funds have outperformed their respective benchmarks while only 9 have lagged behind.

However, over a three-year period, only 23 funds outperformed their benchmarks while 26 funds failed to outperform their respective benchmarks. The Baroda Pioneer Sector Focus Fund may do better than others because it will able to switch between six sectors. But then, that makes it a diversified equity growth fund!