A large cap fund is considered an ideal investment option for risk-averse investors. While these funds do not promise overwhelming returns like their midcap or multicap peers in rallies, they are known to offer better protection in downturns. However, this does not make a thumb-rule for the entire range of large-cap funds including Principal Large Cap Fund.
PERFORMANCE:
Launched in October 2005 in the middle of the bull run, Principal Large Cap managed to do well delivering decent returns in the first two years. For a new fund, it was a rather comfortable journey – beating the market and its benchmark BSE 100 by healthy margins both in 2006 as well as in 2007. Its returns of about 48% in 2006 and 73% in 2007 compared well against BSE 100’s 41% and 60%, respectively, given its large-cap investment mandate. Year 2007, which was an year of midcap stocks, saw the Sensex and Nifty deliver just about 47% and 55%, respectively.
The feat of the first two years of the launch could not, however, be repeated in 2008 and the fund slumped by about 59% against BSE 100’s fall of 55%. The sensex and the Nifty had lost about 52% each in that year. While this came as a surprise given the fund’s large cap mandate, the downfall could be given the benefit of doubt in light of the fund’s high beta of 1.05. Beta compares the risk imbedded in the fund’s portfolio vis-à-vis that of the market as a whole. Thus, a beta greater than 1 indicates the fund is expected to generate returns higher than that of the market and vice-versa.
However, what has indeed been fascinating about this fund is the kind of turnaround that the fund has made in calendar year 2009. Since January, the fund has delivered a whooping 102% returns against BSE 100’s 82%, smartly compensating the downfall it witnessed last year.
PORTFOLIO:
Adhering to its investment mandate, Principal Large Cap has built up its portfolio with some of the best large-cap stocks available in the market. But the same is not without a tint of midcap stocks. The fund has shown a tendency to invest on an average, about 10-12 % of its portfolio in midcap stocks with the average number of stock holdings restricted to about 40 giving the fund a reasonable diversification.
An analysis of the fund’s portfolio shows that the fund has indeed been prompt enough to pick some of the multi-baggers that are reaping yields in the current market. Its picks like Shree Cement in Sep ’08, at one third of the current market price, and Lupin in Aug ’08 – both of these it continue to hold – have seen a good runup . Again Bajaj Auto, which it had picked way back in Oct ’07 has also rewarded it handsomely. The fund has, however, now replaced this stock with Hero Honda. It was also quick to offload Mundra Port within a month of its IPO and before the markets snapped the bull run in early 2008.
However, some of the moves did not work for the fund — such as its investments in ICICI Bank and ABB at their peaks in Jan ’08, the levels they are still to breach. What may have also hit the fund was its early exit from stocks like Axis bank in Dec ’08. Had the fund continued to hold this multibagger stock today, it may have added on extensively to its returns.
VIEW: This four-year old fund has reasonably proved its ability to beat the market in an upturn. However, it is yet to prove the same in the reverse scenario. While its performance in the current calendar year has been highly impressive, it is now rather imperative to watch whether it can continue to maintain this trend in the coming months as well. But given its track record, it can be conveniently deciphered that Principal Large Cap is one of the better performing schemes from the Principal basket.
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