The Hindu Business Line : Alliance Equity Fund: Sell

INVESTORS in the Alliance Equity Fund can cut exposures. The sharp run-up in stock prices provides a good opportunity to exit a fund that finds itself in the midst of quite a few significant uncertainties.

The fund manager of five years, Mr Samir Arora, is no longer with the fund. Alliance Capital has put alternative management teams in place. The new fund manager for Alliance Equity is Mr Dhawal Mehta, earlier part of the Alliance investment management team. The kind of portfolio strategy the new team will adopt is of considerable significance.

The fund management style used in Alliance Equity Fund has been aggressive in terms of sector preferences as well as stock selection — a facet associated with Mr Arora being at the helm of affairs.

This style was behind the fund's impressive performance between 1998 and early 2000, as well as over the last year. It was also why the fund trailing benchmark indices over the last three years, after the previous bullish phase ended in March 2000.

The manner in which the new team will carry forward this style or modify it, and its impact on investment performance, must be tracked before contemplating fresh exposures in the fund.

Over the past year, the fund turned in returns of 42 per cent, a large proportion of it coming in the last three months. During this period, the fund outperformed the broad market. But it trails a sizeable number of its peers.

Investors may be better off cutting their holdings, staying with short-term debt funds and taking up exposures in better- performing diversified funds, especially at declines in the broad market levels.

Suitability: The Alliance Capital Equity Fund is appropriate only for investors with a high-risk preference. The fund recorded returns that more than compensated for the risks involved till about three years ago. But that is not the case now. Investors with a penchant for high risk can also consider paring exposures in the fund.

Any decline in the assets under management, following the exit of Mr Arora, can also have a negative bearing on investment performance. This risk may persist for a month or two, before the assets under management achieve a level of stability.

: The fund is heavy on banking stocks, with about 20 per cent assets invested in SBI, HDFC Bank, PNB and J&K Bank. Information technology is another major holding; but, nowhere close to the dominating presence it once had in the portfolio.

Concentrated exposures in the telecom and pharmaceutical sectors are through stocks such as Bharti Tele-Ventures, Divi's Labs and Dr Reddy's Labs — a strategy laced with risk despite the scope for good payoffs. Most of the stocks in the portfolio now trade at the top end of their valuation levels. This is one more reason why investors can cash out now.

Fund facts: The Alliance Equity Fund was launched in August 1998. The minimum investment amount is Rs 5,000. There is an entry load of 2 per cent. There is no exit load. The fund has generated returns of about 28 per cent per annum since launch, much of it due to its performance in the first 18 months. The asset base is Rs 358.6 crore.<137>

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