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Alliance 1995 – Feeling the heat

Jun 9, 2001

Alliance 1995 Fund, one of the first balanced funds to be launched in India is in a dismal stage right now. The net asset value (NAV) of the fund has slumped as much as 25% over 12 months period.

As it is evident from the chart, net assets of the fund have witnessed a sharp decline of close to 25% in just 3 months. Assets under management have fallen from Rs 4.6 bn in February 2001 to Rs.3.4 bn in April 2001. There can be two reasons for the depletion in net assets.

  • Investors have lost faith in the fund and have exited or

  • The fund’s poor performance itself can be the reason for its downfall.

It seems that the fund has been adversely affected by both these factors.

OPEN-ENDED, BALANCED NAV
(Rs)
1-MONTH 6-MONTHS 12-MONTHS INCEPTION
PRU ICICI BAL G 8.8 0.8% -9.0% -13.5% -6.3%
KP BAL G 8.0 -0.6% -6.5% -14.1% -18.4%
ALLIANCE 1995 G 42.9 -0.5% -22.1% -26.4% 27.6%

The above table highlights the dismal performance of Alliance 1995 Fund. A high exposure to equity markets despite its balanced nature is the cause of its downfall.

As per the latest portfolio (April 2001) the fund has 58% exposure in equity and the balance (42%) in fixed income. Its equity exposure has plunged from 71% in December 2000 to 58% in April 2001. The fund has reacted like most other balanced funds, which have now cut down equity allocations in view of the volatility in the stock markets. Of particular interest is the fund’s lower software allocation to 20%, as compared to 29% in December 2000.

Being a balanced fund Alliance 1995 Fund has not adequately used its fixed income component as a hedge against a fall in equity markets. That is mainly why even some diversified equity funds have outperformed it. Alliance 1995 Fund was too aggressively positioned, which worked well when equity markets were booming in the 1999 and early 2000. However, when the chips were down (read equity markets), the fund (and its investors) paid a price for its aggression.

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