In a world of hyper-aggressive gilt funds, here's one that marches to the beat of a different drummer. Alliance GSF is a small fund that attaches a higher premium to controlling risk than to generating the highest possible returns. For most of its history, this fund hasn't figured in the top quartile during good times. But then, it has usually performed well during the volatile periods.
Recently, Alliance GSF does seem to have shed some of its conservatism and moved returns up a notch without really taking too much additional risk. All in all, the fund has one of the best risk-reward ratios in the category and generates excellent returns given its low risk levels.
Take a look at the way it has been improving its annual ranking, which has shot up from the extreme bottom of the last quartile to the second quartile in the calendar so far. Whether it was the turbulent second quarter of 2002 or the first quarter of 2003, when interest rates moved up sharply, Alliance GSF was in black while the average gilt fund bled. Alliance GSF started off with a measly corpus of around Rs 10 crore, inflows during early 2000 saw its asset base touch almost Rs 30 crore which was reasonably spread out across gilts. Though anticipating volatility ahead, the fund gradually reduced average maturity from 7 years in April to 4.20 years in July, but was still above its average peers' 3.19 years. It lost twice as much as its peers and hence investors ran away for cover, bringing down its asset base to mere Rs 8 crore by end of 2000.
With a portfolio concentrated over two to three securities of short-to-medium maturity profile, Alliance GSF failed to capitalise on the sharp fall in interest rates during 2001. However, since late 2001, Alliance GSF has attempted to spread out its portfolio across a number of securities. Not only this, active realignment of portfolio according to interest rates outlook has seen this fund outperform its peers during bad as well as good times.
With an expense ratio in line with category average, Alliance GSF is a decent choice for investors who are ready to bear some risk for regular income. The fund's small size may, in theory, limit its trading choices, but this does not seem to have had an adverse affect on its performance.
This article was originally published on December 08, 2003.
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