The fund could be a key beneficiary of the economic recovery and is a good hedge for an aggressive tech-oriented portfolio
01-Aug-2001 •Research Desk
Alliance Basic Industries was launched under the Alliance Select Series in January 2000. A thematic fund, it invests in companies from fundamental industries such as automobile, engineering, capital goods, petrochemicals, paper and banking. Thus, the fund's investments are largely sensitive to economic and commodity pricing cycles. While entry into the fund is at a load of 1.75 per cent, redemption is at NAV.
Alliance Basic Industries is not a sectoral fund since its investments are spread across a number of industries. This gives a diversified flavour to its holdings. At the same time, the fund's performance is linked to the fortune of the broad cyclical or "old economy" sector. Launched amidst the tech bull-run, the fund has remained below par with cyclical stocks out of favour due to a sustained economic downturn. In its brief history, the fund has returned a (-) 12.97% and has comprehensively beaten the 30-stock Sensex, which has lost 27.5% during the same period. Yet, despite the relative outperformance, the fund has been under redemption pressure.
The fund has maintained concentrated holdings since inception with top five stocks accounting for an average 53 per cent of the portfolio. While the fund was initially bullish on the banking sector, it has exhibited a distinct preference for the capital goods industry in the current calendar with investments in stocks of BHEL, L&T, ABB and Cummins. For the month ended June 30, 2001, the sector had a weight of 35.7% in the portfolio.
While the fund has an investment basket of large-cap and liquid stocks, it is focussed on cyclical industries. Thus, investors should not expect thick returns in the short-term but need to be patient with their investment. The fund could be a key beneficiary of the economic recovery if the economy starts to look up and is a good hedge for an aggressive tech-oriented portfolio.