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The Return of Diversity

In the past two years, the fund's returns have taken a beating, especially when compared to its peers. However, this roller coaster ride is now showing some signs of stability.

The last two years have been no joyride, but Alliance Equity Fund is still a contender for the aggressive investor's attention with an impressive track record. This large-cap growth fund has finished two of the last three years in the category's top quartile with a total return of 21.36 per cent since its launch in August 1998. Alliance Equity swore by technology like many of its peers. Its high profile fund manager, Samir Arora, believes in a bottom-up approach. Arora was also among the first to spot the potential of infotech, communication and entertainment (ICE) stocks.

Its aggressiveness has sent the fund to the top of the pack during growth rallies, but this has not been the case lately. Riding on the tech bandwagon, with big names like Infosys and Satyam, the fund posted a breathtaking 280 per cent return in 1999. This gave the fund a short-lived headstart — as the ICE stocks melted, so did this fund.

Arora is a buy-and-hold guy. He believes it takes years for growth companies to blossom. But in 2001, the fund's fetish for tech stocks was at odds with the valuations of its favourite picks. It remained overweight in the software sector despite falling equity prices. As a result, it ended the year in the category's bottom quartile.

However, with the large-cap growth story refusing to go anywhere for a while, the fund's search for growth stocks has drifted a bit from large-cap to mid-cap. For instance it has picked up Hinduja TMT, Polaris and Mastek in recent months. The impact of this changed strategy is yet to be felt. However, there is good reason to stay the course here. The fund has trimmed its tech holding to 29 per cent making it less volatile. It has also turned aggressive in auto and financial sector stocks in recent months. With these realignments, its portfolio is now much more diversified and the fund is all set to begin a new innings.

To sum up, you may have been burned by Alliance Equity in the past, but the changes in the fund's approach is likely to mean that the future will be better. The recent losses certainly have not wiped out its strong long-term record. But be warned: Alliance Equity's aggressive growth focus means that it is not meant for the faint-hearted, but there will probably be more ups than downs in the future.