More often than not, Alliance MIP's investors have reaped the rewards of the fund's aggression. Whether it's high exposure to equities or taking a big call on interest rate, this fund tends to go to extremes to provide the little extra that each asset class in its portfolio offers.
Though this strategy makes it the most volatile MIP around, Alliance MIP's returns have more than compensated for this. Of course, if you think that returns with volatility are not the right recipe for a MIP, then this fund is not for you.
On most occasions, the fund has maintained a higher equity allocation. This means its performance is largely driven by the way equities are headed. Through 2003, it had an average 13.25 per cent exposure to equities as against the peers' 9 per cent allocation. As a result it topped the category in that year with a return of 20 per cent.
A sharp rise in scrips like Bharti Tele-Ventures, Divi's Lab, Punjab National Bank and Tata Motors has been the key to this performance. Apart from a high equity exposure, the fund's average maturity has also been on the higher side (currently 4.6 years vs 3.16 years for the category).
The debt component is thus run more like a medium-term bond fund while its peers resemble a short-term debt fund. The combination of aggressive debt and high equity helped the fund in the second and third quarters of 2003 when both asset classes rallied, while volatility in both in January 2004 penalised the fund.
Higher exposure to equities also backfired in 2001 when the fund found itself at the category's bottom. Similarly, a higher gilt exposure at higher maturities caught it off guard when the bank rate was unexpectedly hiked in July 2000. Earlier on, the fund used to scout around for upgrades in AA and associated papers. With declining spreads, the fund has been avoiding these issues in favour of AAAs.
The fund's aggressive posture on both equity as well as debt will continue to make Alliance MIP a volatile offering. Thus, this fund is not meant for the cautious types. Investors who have the ability to withstand higher volatility can, however, reap higher returns over the long-term.
This article was originally published on March 31, 2004.
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