Launched in October 1999, Alliance GSF Long-term, a no-load fund seeks investments in medium and long tenure government securities. In its half-yearly dividend option, the fund has paid three dividends of 6.1 in March 2000, 2.1 September 2000 and 2.3% in March 2001.
The fund invests in central and state government securities and treasury-bills. With this investment focus, the fund offers a portfolio of high credit quality, for these instruments carry sovereign backing. The active market interest in these instruments ensures that they also offer high liquidity, which gives room to change portfolio strategy.
The key risk element in a Government Securities fund is the interest rate risk, for bonds respond sharpely to changes in interest rate outlook. These instruments move inversely to changes in interest rate- gaining value in times of a rate cut and shedding value with a hike.
In its initial spell the fund was largely right with its call on interest rates outlook. However, the fund caught on the wrong foot on the softening of rates since October 2000. Since then fund has held a lower maturity portfolio at close to 2 years even as the charter allows it to stretch up to 9 years. Even as the fund chose to realign its maturity in April 2001, it has been a rather belated awakening, for the fund has lost out on the sharp rally earlier in this calendar. Given this, it is not surprising to find the fund in the bottom of the performance charts. For the fund with a one-year return of just 8.02, it is trailing its peers who have posted an average of 12.91%.
Alliance GSF Long-term offers a highly quality portfolio, but remains a below average performer for a missed call.