Alliance New Millenium hasn't escaped the ruin of the tech sector. It has made drastic portfolio shifts to survive. Claiming to have caught BPO boom much ahead of others, surprisingly, it's mid-cap companies, which are its top 5 holdings today. In comparison, until last year, the fund was deeply infatuated by top-rung names only. But post-9/11 that optimism has given way to doubts about the sustainability of businesses of large-cap Indian companies.
Though the sector has been in the red since the start of the calendar, the change of look is attributed to mid-caps outperforming large-caps this year, which has helped the fund limit its losses. But that doesn't mean its performance has been flawless. The same mid-caps stocks that have been its pet for a while have been volatile too, amply reflected in the fund's 3-month loss of 20%. However, it is one-up on its benchmark, as the BSE IT Index lost 24% during the same period.
The fund illustrates the danger of believing in the market hype. Investors who bought heavily in early 2000 have been a disappointed lot. Though there could be hope. The reason: the fund manager's belief in buying potential leaders ahead of others and holding on to them for long has paid off. For instance, Digital Globalsoft surged 40% since the fund picked it up in May 2000. Of course, this belief extends to other sectors such as media and telecom. Case in point: Balaji Telefilms in its 1-year stint is up 188%.
While all this send the fund's returns into a tizzy, there have been some mishaps as well. Launched at the peak of tech fever, Alliance New Millenium deployed its resources in a wide assortment of technology and media stocks off all kinds. And then suddenly the markets developed discomfort with technology and media stocks. As a result, non-ICE holding like Reliance Industries figured at the top for a long time. But that's not the case anymore, media stocks is finding favour again, albeit selectively -- from last year's mere 1% exposure to 10.23% exposure as on June 30, 2002. And all this is accompanied with occasional high cash stakes, as the fund prefers to sit on cash than have a non-performer in its portfolio.
However, there are significant risks here, with its sizable mid-cap stake, which could well fall flat on its face in the short-run. Only extremely risk-tolerant investors comfortable with the fund's aggressive stance should think about putting their money here.