Mutual Funds >> Fund of the Week
Alliance Basic Industries Fund
  • Investment Objective: To invest in companies sensitive to economic     cycles and commodity pricing cycles.
  • Fund manager: Samir Arora
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    • Profile

    Alliance Basic Industries Fund (ABIF) is a sectoral fund launched with the explicit investment objective of investing in cyclicals and commodity-based companies. It is a part of the Sector Select Series launched by Alliance Capital in December 1999. The other two sectoral funds invest in software (Alliance New Millennium Fund) and fast-moving consumer goods (Alliance Buy India Fund). Being a sectoral fund, the fund's portfolio has been plagued by cyclical woes which explains its rather subdued performance since inception (down 15%). Over the last 12 months the fund has slumped by about 18%, which isn't so bad when we consider that diversified equity funds have done far worse.

    As on 31st August, the fund's net assets under management amounted to Rs 243 m.

    Is this fund for you?
  • Entry load: 1.75%
  • Exit load: Nil
  • Risk: High
  • Return: High

    • ABIF has a high risk-high return profile, and is only for investors with considerable risk appetite. Investors who have just begun to find their feet in the investment world should avoid it until they have diversified across several sectors. A cyclicals and economy-linked fund like ABIF should never be the first investment, rather it should compliment other stock/mutual fund investment so as to diversify risk effectively. It should be bought in an investment climate like the current one, when the economy is on a downturn and when the fund is at an attractive net asset value (NAV).

    Performance Analyses

  • Peer Table

    SECTORAL FUNDS NAV (Rs) 1-MTH 6-MTH 1-YR INCEP.
    UTI SEC-PETROLEUM 9.3 -18.4% -31.4% -16.6% -2.8%
    ALLIANCE BASIC G 7.0 -13.7% -11.3% -18.3% -14.1%
    MAGNUM CONTRA 6.5 -15.0% -16.5% -22.0% -19.9%

    (Returns over 12 months are annualised)

  • Portfolio Strategy

  • Sectoral allocation
    At 33%, the fund's exposure to engineering/capital goods sector accounts for about 1/3rd of net assets (as on August 31, 2001), which is in line with its investment objective. It also has 16% in auto/ancillaries, 10% in cement, 8% in oil, 8% in non-ferrous metals. Apart from the cyclicals, the fund has over 12% in investment/finance. The fund's portfolio is well-diversified across a range of sectors without undue exposure to anyone sector.

  • Company allocation
    The top 10 stocks in ABIF's portfolio account for about 58% of net assets. This makes the fund fairly well-positioned to counter volatility in its leading stocks. (An exposure of up to 60% of net assets in the top 10 stocks is considered relatively safe by fund managers.) The fund has less than 20 stocks in its portfolio, which is the right number given its size.

    The fund has all the leading lights in the respective sectors - Bajaj Auto, Hero Honda, HDFC Bank, ABB, BHEL, Grasim, Castrol, Sterlite, Reliance Ind. This will ensure that when these sectors witness a revival, the fund's portfolio will more than reflect that.

    • Outlook

    Given the subdued mood with regards to economic factors like industrial production, credit offtake, an economic rebound could take longer than it was first anticipated. Moreover, with fears of a US invasion in Afghanistan, the domestic economic scenario could turn very uncertain. Being linked directly to the economy, ABIF could witness some erosion over the coming months. Investors should look at remaining invested for at least 24 months to see any significant appreciation in their investment.

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