The ICE melted and so did Alliance. But that was a while ago. This fund's trailing 3-year return of 23.61% as against peers' 7.18% suggests that it still packs a punch. So, what went wrong?
It just didn't look (well, carefully!) before it leaped.
Launched in August 1998, Alliance Equity swore by technology like many of its ilk. Its fund manager, Samir Arora, who believes in a bottom-up approach, was among the first to spot the potential of ICE stocks, which is obviously reflected in his stock-picking style.
Riding on the tech bandwagon, the fund posted a breathtaking 280% return in 1999. By March 2000, its tech exposure rose as high as 62%, with Sify, Infy and HCL Technologies accounting for 40% of the total tech holding. That gave the fund a headstart. Which, of course, was short-lived. In the spring of 2000, thanks to the tech crash, the fund received serious injuries. The result: it lost 17.78% through 2000.
The fund didn't pay any heed to it and continued with its tech fancy through 2001, which affected its performance. Its aggressive approach made it one of the more volatile funds floating around. This was evident in a 28% fall in 2001 as against the benchmark Nifty's loss of 15%. Incidentally, the same approach – large-cap orientation and aggressive equity stance – had worked wonders for the fund in the initial years. A deep contrast indeed. But with equities on the rise this calendar, the fund has actually put up a decent performance on a year-to-date basis -- up 15.53% as against peers' 13.73% as on April 30, 2002.
It could have survived the downturn had it invested in defensive stocks, which would have reduced volatility. Since these stocks constituted a small chunk of Alliance's portfolio, the fund failed to get adequate cover. For the record, healthcare and consumer non-durable stocks take up about 11% and 9%, respectively, of the fund's corpus.
However, don't lose heart, there's good reason to stay the course here. In the recent months, the fund has trimmed its tech holding to 25% making it less volatile. It has also turned to cyclical auto stocks like Hero Honda and Bajaj Auto, which now account for 15% of its portfolio. With the recent realignment, the fund is all set to begin a new innings.
In short, you can still rely on Alliance. But be warned: its compact portfolio and aggressive growth-focus means that it isn't meant for the faint-hearted. The fund will gets its groove back once equities get going. Whether it will break the ice with investors is again anybody's guess.