The fund is down 40 per cent year-to-date through October 18, 2001, which is also twice as much as the fall in Nifty, its benchmark. A confidence shaking performance for any believer in growth investing. Despite the carnage, a sizzling three-year return of 25 percent (which is also its age) is little comforting. Indeed, the fund has been a significant beneficiary of its launch coinciding with the start of the technology super-cycle, which it capitalised on to the hilt. During this period, the fund made lavish payouts with 5 half-yearly dividend aggregating 125 per cent, the last being 10% in October 2000.
The fund manager Samir Arora focuses on growth stocks with solid cash flows, which also command high-price tags. And it shows in the average P/E of 22 times for his portfolio. The fund still remains a strong believer in technology and has parked 22 per cent of its money in these stocks - its largest sector weight. In these rough times, barring pharmaceuticals stocks the fund manager has ignored the growing market fancy for defensive plays -cement, engineering, energy, services and FMCG. He cites the dearth of quality stocks in these sectors for his abstinence.
Keeping up with this strategy, Alliance Equity started off with aggressive stance in technology and MNC healthcare stocks. The fund aggressively participated in the technology super-cycle with a peak exposure of 62 percent in June '00. The fund has consistently pared its technology exposure and showed sharp reflex to dilute its aggressive positions in technology stocks, by weeding out its portfolio heavyweights then - Global Telesystems, HFCL and Mastek. The fund has maintained its position with top rung software stocks - Infosys, Satyam, and HCL Technologies.
Beyond technology, the other prominent part of the portfolio in domestic pharmaceutical stocks - Cipla and Dr Reddy's Laboratories as the fund manager believes in their earning potential which is insulated from international events, new drug research and growth in generic exports. Despite the fund claiming a bottom-up approach, the fund looks very different from its old days. Besides the large-cap orientation and a quality focus, the fund is rarely found with an individual stock weight in the portfolio going above 10 per cent. But it still packs it 70% of assets in top 10 holdings.
Alliance Equity is not for every one, as the fund will remain on its extreme up and down course. But the management has a track record of putting up big numbers when the market for growth stocks surges.