Alliance New Millennium: Hold

Recommendation: Hold

S. Vaidya Nathan

INVESTORS in the Alliance New Millennium Fund can stay invested as the funds' performance shows signs of consolidation.

The portfolio also appears to be better than when the fund was launched.

Fresh investments can, however, be avoided, as technology sector stocks may go through some more volatility, and significant changes are taking place in the valuation of even the frontline technology stocks. The fund has placed big bets on select telecom stocks where the risks appear fairly high.

Suitability: The fund is appropriate for investors who seek an exposure to technology stocks. For first-time technology sector investors, this fund along with the Kothari Pioneer Infotech Fund could provide a good combination from a medium- to long-term perspective. The fund is basically appropriate for investors with an appetite for fairly high risk.

With the technology/telecom/media sectors accounting for close 50 per cent of the market capitalisation of listed stocks, exposures in the sector are necessary for even conservative investors to get returns that match the market returns.

Investors can choose the dividend option on account of its present superior tax efficiency. However, any changes in this regard _ the fiscal concession that open-end funds with an equity exposure of more than 50 per cent would be exempt from tax _ in the fiscal 2000-2001 Budget have to tracked. Even if any changes are made, it may be better to stay in the dividend plan so that cash pay-outs can help lock in on any gains that may be made. However, the fund's performance may need to improve considerably before any dividend payment is made.

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Portfolio overview: Though the fund has been in operation for just eleven months, its portfolio shows some interesting trends.

*The fund had invested its big corpus in excess of Rs 500 crore fairly quickly. By March, the fund had invested 96.5 per cent of its net assets in equities. This was the period when the market were coming off all-time highs, but prices were considerably higher than they are now. With technology stocks bearing the brunt, the fund took a knock from which it is recovering.

*The fund has stuck to the telecom/technology stocks that were favoured by Alliance Capital in the last 24 months. The fund started off with heavy exposures in Satyam Computers, Infosys, Global Tele-Systems, Zee Telefilms and Shyam Telecom.

*But over the last six months, notable changes were made. The fund has cut exposures in the Global Tele-Systems and Himachal Futuristic. The sell-off in Global Tele-Systems is fairly significant, as the stock has a high weightage in virtually all Alliance equity schemes. But whether the New Millennium Fund made gains of this exposure is doubtful, while other schemes of the fund may have done so on account of their early entry. The sell-off suggests a negative view on the stock.

*The fund has raised exposure levels in stocks such as Satyam Computers and Zee Telefilms, while Infosys is a solid anchor in the portfolio.

*There has also been notable churning in the portfolio of media stocks _ even unlisted ones at that. The media exposure was sharply down to 6.8 per cent of net assets in September, against 10.8 per cent in March. Telecom sector weightage also declined from 30 per cent to 20.3 per cent in this period, largely as a consequence of the sale of exposures in Global Tele-Systems.

*The fund has increased its cash position to around 14 per cent. This appears to be a consequence of some portfolio churning. The fund had close to 40 stocks in March, and has now consolidated it to around 25 stocks by September.

*The portfolio wears a much a better look in terms of the stocks though the net assets has declined from Rs 773.4 crore in March to Rs 504.7 crore in September.

Fund facts: The Alliance New Millennium Fund was launched as part of The Alliance Sector Select Series in December 1999. The fund offers entry at a load of 1.75 per cent over the NAV and there is no exit load. The fund offers a dividend and a growth option. The NAV of the fund is Rs 8.13 per unit indicating an erosion of 18.7 per cent since launch. The performance in the latest three months has helped improve the picture somewhat and existing investors can hold on to their exposures.