Principal Emerging Bluechip Fund

AUM Rs 287.9 CRORE.......................................................................................... AS ON JUNE 30, 2014

NAV Rs 50.64.................................................................................................. AS ON JULY 08, 2014

Mid-caps and small-caps have been the flavour of the season. Our fund of the fortnight this time is Principal Emerging Bluechip Fund. An illustration of the returns generated by this fund would suffi ce to substantiate our rationale behind recommending this fund. If you had invested `1,000 per month for the last three years, then the cumulative investment of Rs 36,000 would be worth Rs 61,229 today. Th is shows the inherent strength this fund has over the long term. In the last one year, the benchmark CNX Midcap has given a return of 47 per cent as against 62 per cent return given by the fund.

Managed by Dhimant Shah since 2011, the fund invests 65–95 per cent in mid-cap stocks, i.e., stocks with market cap in the range of the market cap of stocks comprising the benchmark CNX MidCap Index, and 5 -15 per cent in small-cap stocks, i.e., stocks with market cap lower than the market cap of the last stock in the benchmark CNX Midcap Index. It is not that the fund was immune to the slowdown that had engulfed the world in the year 2008 and 2009. But the fund has emerged a winner mainly because of its investment philosophy. The assets under management (AUM) of the fund as on March 31, 2014 stood at Rs 287.90 crore.

What is also attractive about the fund is its diversified portfolio. Looking at the composition of its portfolio, the top five sectors constitute 62.80 per cent of its portfolio, much lower than that of its peers. The top five sectors are: Financial (21.50 per cent), Construction (11.67 per cent), Healthcare (11.35 per cent), Engineering (9.65 per cent) and Automobile (8.63 per cent). This sectoral asset allocation clearly exhibits that the tilt is towards cyclical sectors, which have once again come into the limelight post-elections, but the fund has also cushioned these with some safe sectoral bets like healthcare. The top five stocks that form part of its portfolio are Federal Bank (3.64 per cent), Amara Raja Batteries (3.51 per cent), Tech Mahindra (3.34 per cent), Sadbhav Engineering (3.29 per cent) and Motherson Sumi Systems (3.25 per cent). Out of 59 companies that form part of its portfolio, mid-cap and small-cap companies constitute 78.50 per cent of the AUM, while the balance is held in exposure to large-cap stocks.

 The improved performance of the fund has not come at the cost of risk-taking even on a conservative note as compared to its peers. This can be substantiated by looking at the sharp ratio which stands at 0.72. The alpha of the fund stands at 10.06, which represents the excess return that the fund has generated at a given level of risk.

The fund can be an ideal candidate to be included in the mutual fund portfolio of both risk-taking as well as risk-averse investors. However, the SIP route for investors seems to be the best way to invest in this fund scheme

Dhimant Shah
Senior Fund Manager – Equity, Principal PNB AMC