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Inauspicious Start

A new fund house and a change of name have proven inauspicious for Birla Sun Life New Millennium (earlier Alliance New Millennium). But don't rush to exit. The struggle in a new family might be temporary

In the very first quarter of existence under the Birla Sun Life Mutual Fund, this otherwise consistent outperformer has lagged (8.76 per cent) well behind 15.89 per cent return of an average peer as well as the 19.76 per cent gain of BSE IT index in the quarter ended December 31, 2005. However, let us make it clear that the underperformance is not a result of any significant change brought by the new fund managers in the portfolio but what the fund house got from erstwhile Alliance Mutual Fund. After taking over the fund, the new managers made two additions-Nucleus Software Exports and Allsec Technologies, amounting to an average 6 per cent of the portfolio in the last three months. Both stocks have done well in the short period. It added another three stocks in December. Now, the fund looks much more diverse as compared to the earlier portfolio spread over just 12 stocks.

Investors here should not panic and track the fund's performance closely. They can draw solace from the fact that Birla Sun Life Mutual Fund has a great record of managing technology fund-Birla IT was the hottest fund in troubled 2001 and an average performer in 2002, before its objective was changed and the fund was renamed as Birla India Opportunities.

Birla Sun Life New Millennium had a good run till the third quarter of 2005-it was in fact the best performing fund till September end with a return of 40.54 per cent. However, a poor show in last quarter pushed it to fourth rank last year.

The fund had a disastrous start in January 2000-it lost more than half its NAV between February and December 2000. Years 2001 and 2002 were no different. The first three years were bad for the tech sector, and hence tech funds. Within tech funds, this fund was among the worst performers. But from there, Alliance New Millennium's fortunes turned for the better. It managed its turnaround thanks to a greater focus on mid-caps, a relatively concentrated portfolio and some good stock picks.

Birla Sun Life New Millennium has a decent track record. However, with the change of management, it hardly has any meaning now. Its fortunes depend on how well the new fund house manages the volatile times ahead.