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Not For Faint-Hearted

Though this fund's recent performance is not impressive, we believe that Alliance Basic Industries packs some real punch and should be accommodated as a small proportion of the portfolio to give a kicker to overall returns

Year 2005 has been terrible for this fund as it gained just 12.36 per cent against the category average return of 22.87 per cent as on August 24, 2005. Though it has underperformed its average peer every month, January and June have been extraordinarily painful as it plunged 4.45 per cent and 0.88 per cent, respectively. Huge allocation to metal, select banking and auto stocks has let the fund down.

While this performance is discouraging, this fund by its very objective is designed to test your patience. A focus on economy-sensitive, cyclical and commodity stocks and huge sector and stock concentration makes this fund ill-suited for chicken-hearted investors.

Notwithstanding the poor show in recent times, the fund has a glorious past. By completely ignoring technology stocks and concentrating on cyclicals, Alliance Basic Industries has found a place at the top of the performance charts. During the second quarter of last year, Alliance Basic Industries had underperformed, but it recovered and posted category-beating return of 29.41 per cent for 2004.

Dexterous moves between sectors and stocks have helped the fund. For example, after making handsome gains from some of its top picks such as HDFC in 2000, Alliance Basic Industries pared its financial services exposure in 2001 to make way for automobiles, diversified and engineering stocks. This allocation helped it beat diversified equity funds during the post-9/11-February 2002 bull run. This, however, doesn't mean that the fund has not made mistakes. Alliance Basic Industries was a late entrant in Hindustan Petroleum and Bharat Petroleum.

Alliance Basic Industries follows its mandate and delivers the goods. The fund can be used to diversify a portfolio laden with new economy stocks. Alternatively, investors looking for a portfolio of economy-sensitive stocks can give this fund a shot.