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Diversified Equity funds: yesterday's winners vanquish today

It has been a year of stark contrast where yesterday's winners are today's vanquished. From triple-d

It has been a year of stark contrast where yesterday's winners are today's vanquished. From triple-digit returns in 1999 to notable losses in 2000, last year's best diversified equity funds have become this year's mediocre performers. In a tough year for technology stocks, many of these mostly aggressive funds have seen their favorite stocks struggle. Unlike last year when initial public offerings were listing at a huge premium to their offer price, a weak market for IPOs has added to the woes. The combination has pounded fund returns to the ground.

Take for instance, the top diversified equity fund of 1999, Magnum Taxgain from SBI Mutual Fund. The fund's top holding in SSI has shed over 26% since the beginning of the year while another top rung stock of Aftek Infosys has lost nearly 60%. The two stocks, on an average, have accounted for 22% of the fund's assets this year. But for a sizeable exposure to HFCL (up 84% year-to-date), Magnum Taxgain would have been washed away since most holdings have lost value.

The fund has lost 47.6% for the year to date through November 28, a contrast to the eye-popping 315% return it posted in 1999. Or take for instance, the chart buster equity funds from Birla Sunlife AMC, Birla Advantage. The fund today stands eroded by nearly 43% against a ballistic return of 308% last year. Concentrated holdings in the technology sector have also proved to be the nemesis of this fund with Infosys and Visualsoft accounting for nearly 40% of the corpus! Visualsoft in particular has been severely hit, losing 68% year-to-date. While Infosys is down only 4% since January, it is also down a whopping 68% from its March 7 high of Rs 12,800.

Meanwhile, active portfolio management and investments in some of the better performing technology counters has helped Alliance Capital Tax Relief stay in the positive territory. Although the year-to-date return is paltry at 0.72% (against 290% in 1999), it is the only fund with a positive return in the diversified category. While the fund has had a concentrated exposure to the technology sector, it has had a largely spread out portfolio among ICE stocks. Besides, the fund's top holding in HFCL has been one of the rare gainers in 2000, up from Rs 731 on January 3 to Rs 1353 on November 28.

IPOs were also red-hot in 1999 and huge gains in IPOs translated to big returns for funds. For instance, Television 18, with an offer price of Rs 180 had opened with a bang at Rs 1800 on listing. The current year has been a mixed bag for the initial primary offers with several new offerings failing to enjoy the expected sharp first-day gains. Unlike a blind run for all and sundry last year, the market has given thumbs up only to good companies with reasonably priced issues while some of the new listings are yet to touch the offer price. Thus, it has largely been a play of fund manager's picks in 2000. With the IPO market fizzling out, some of the companies have even postponed their listing plans and have impacted the funds locked into their equities.

How Diversified Funds Have Fared
    Returns  Returns
  Magnum Taxgain -47.60 315.76
  Birla Advantage -42.69 307.78
  Alliance Tax Relief '96 0.72 290.00
  Alliance Equity -16.55 280.06
  Zurich India Taxsaver '96 -0.47 230.96
  Magnum Multiplier Plus -50.30 220.09
  KP Prima Plus-G -34.65 208.83
  Magnum Equity -41.10 205.97
  Reliance Growth-G -43.82 198.20
  KP Prima -48.60 197.16