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S. Vaidya Nathan

INVESTORS in the Alliance Frontline Equity Fund can sell and switch to diversified funds with a superior track record. The funds' performance compares favourably with the benchmark index but is unimpressive compared to other equity funds.

This is the case over past year (returns of about 75 per cent) as well as over the last three months (about 32 per cent). In the latter period, its performance slipped considerably in terms of peer comparison. The six other equity-oriented funds from the Alliance Capital stable too have done better across both these time periods, and especially over the past three months. The small size of the fund — asset base of Rs 21 crore — has not been effectively used to ramp up returns, even in the bullish market of the past six months.

The lower levels of asset allocation to the oil and gas sector, as compared to the benchmark BSE-200; the higher level of exposure to information technology and consumer goods; and absence of exposures to power, chemicals, diversified and housing sectors have had a bearing on performance.

In this backdrop, investors may be better off cutting exposures and switching to funds such as HDFC Equity, Franklin Bluechip, Franklin Prima, Alliance Basic Industries and HDFC Top 200 (which, too, tracks the same benchmark as Alliance Frontline Equity Fund).

Suitability: The Alliance Frontline Equity Fund has a diversified portfolio in line with its objective of tracking the BSE-200 Index. The risks are in line with what one can expect of a typical diversified fund. The investment strategy has not been as aggressive as one has come to associate with an equity fund from Alliance Capital.

It is on returns that the fund falls short of many peer funds. It has been in existence for about 15 months now,

But its inability to stack up well in a bullish market, despite having started off when the bull run was six months away, does not send the best of signals. Irrespective of the risk preferences of investors, a switch appears to be the better option.

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