Alliance 95

This one doesn't believe in the herd mentality. It likes to lead rather than be led. It is an equity-picker. It is one of a kind in its category, which explains why Alliance 95 has outperformed its peers by a huge margin. Launched in February 1995, the flagship scheme of Alliance Capital follows the 60:40 dictum: 60% equity and 40% debt.

The out-of-the-box thinking of this fund has paid off in spades. By maintaining a diversified and an aggressive equity portfolio, the fund beat its peers hollow for the first three years. And the big lead of 1999 has made it through for the fund. That it is cut above the rest is clearly evident from its performance. In 1999, when the markets were going great guns, this fund posted a 180% return, catapulting it to the top position in its category. By end-1999, the fund's tech holding touched a high of 40%.

Not really out of place considering since its inception, this fund has been bullish about technology stocks. It comes as no surprise then that, of the fund's equity component of 70%, technology stocks account for 27% of its portfolio. No guesses for who the favourites are. Obviously, Infosys and Satyam.

However, after ruling the roost for some time, the bear atmosphere has thrown the fund off-balance. The fund lost 11.4% in 2000 and was down another 14.5% in 2001. Although the results have been rather dismal the fund has managed to do better than its average peers. Turning conservative from aggressive has come a little late in the day thereby impacting the fund's fortunes. As a result, following a pallid performance, Alliance 95 reduced its exposure to tech stocks, bringing it down from over 40% to 16% by mid-2001.

Through deft maneuvering, the fund has managed its debt portfolio quite efficiently. In early 2001, to prevent a downslide, the fund betted heavily on low-risk gilts and AAA-bonds. Smart tack, though short-term. To take a call on coupon income, the fund moved to AA and below-rated bonds in the latter half of 2001. Currently, AA-rated bonds constitute about 21% of its portfolio while exposure to AAA-rated paper has come down to 1.36%.

Continuing with its fascination for measured bets, it is backing technology again, which, today, take up 20% of its assets. Understandable as tech stocks have been on the rise in the current calendar. Also, the fund has invested a sizable portion in cyclical auto stocks like Hero Honda and TELCO. And of course a small portion (15% of the portfolio) in low-risk healthcare and consumer non-durables stocks. For this fund with a strong track record, success is nothing new.
With a total return of 25.35%, the fund has no doubt delivered higher returns vis-à-vis its peers.

However, what makes this a highly-volatile fund is its equity-heavy portfolio. Calling it a balanced fund wouldn't be accurate (although it is), its mannerisms clearly say it is an out and out equity fund. After all, equity component still accounts for 73% of Alliance's corpus making it susceptible to major swings either ways. So, investors with a heavy-risk appetite should salivate on this.

This article was originally published on May 01, 2002.