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Keep the Faith

Alliance Equity, the one time champion among equity funds is struggling hard to regain the top slot. With new manager at the helm, investors can wait to see if the new style brings in great numbers

After a fantastic performance during the bull frenzy of 1999 and early 2000, Alliance Equity slipped to the bottom of its category for two successive years. No doubt, that it has delivered a middling performance in the current year's rally, but that category-topping performance is yet to come again. To add to the woes, Alliance's high profile fund manager, Samir Arora, was ousted for alleged insider trading in August this year.

Though the change of guard is a cause of concern, investors should not panic. The fund's performance had already deteriorated by August 2003 when Arora was at the helm. Now Dhawal Mehta, with over seven years of experience in equity research, has taken charge. A whiff of new investment philosophy could perhaps bring in big numbers for investors.

It was Samir Arora's penchant for technology stocks, which helped the fund attain dizzying heights when tech stocks ruled the roost. The fund posted a breathtaking 280-per cent returns in 1999. This gave the fund a short-lived head start—as the infotech, communication and media stocks buckled, so did this fund.

Nonetheless its belief in the technology business was not shaken and apart from pharma, these stocks continued to have dominant positions in the portfolio till 2001. In the process, the fund couldn't capitalise from the rally in energy and cyclical stocks during the rally of September 2000 to February 2001. It gained a mere 5 per cent against its average peer's gain of 16 per cent. But exactly because of its tech holdings, Alliance Equity figured in the top quartile in the bull market after September 11, when technology stocks led the charge. Automobile was one sector where the fund moved at a higher speed than its peers during late 2001 and could make the most of the rise. Besides, early entry into stocks like Uniphos Enterprises (erstwhile-United Phosphorus) and J&K Bank, and holding them for a long time has brought good results. The fund participated in the PSU bank rally of early 2003 too. But in the recent rally, where the winners have been the oil and healthcare sectors, stocks like IOC, ONGC and Ranbaxy are rarely seen in the portfolio. Thus, it could be some time before Alliance Equity once again starts getting things right and that too in a consistent manner. Till then, investors can hold back fresh investments in the fund.