The Hindu Business Line : Principal Large Cap Fund: Invest

The Principal Large Cap Fund has managed a good performance, relative to its peer group, since its inception. The fund is yet to complete a full market cycle; but the performance so far suggests that it may be a good diversification option for your portfolio.

Since its launch, the fund has generated compounded annual returns of 58 per cent and has outpaced the benchmark Nifty index by 13 percentage points.

The track record, though short, inspires confidence as it compares well with the returns generated by established funds in this category. Though the fund’s mandate allows it the flexibility to invest in mid-cap and small-cap stocks, the fund has stayed mainly with large cap stocks. In the past one year, exposure to mid and small-cap stocks accounted for less than one-tenth of its asset base. The fund’s large-cap focus has enabled it to recover lost value pretty quickly during corrective phases in the market such as the ones in May 2006 and February 2007.

Suitability: Its focus on the well-known companies of India Inc makes sure that Principal Large Cap Fund carries lower risks than is the case with the typical diversified fund, which usually invests across market cap range.

Volatility in returns may be lower when compared to flexicap funds. The fund does have some flexibility to invest in mid and small-cap stocks, so that potential in these segments is also captured.

Performance: The fund’s NAV has grown by 60 per cent in the past one year and this growth has outpaced the benchmark by 17 percentage points.

During the same period, the fund’s large-cap peers HDFC Top 200 and Reliance Vision trailed the fund’s performance by a significant margin.

The small asset size could have lent support to the fund’s performance. The fund trailed its benchmark in eight out of the past twenty-four months, on a rolling return basis.

Portfolio Overview: The fund had 29 stocks in its October portfolio and had concentrated exposure to the top ten stocks, which accounted for 52 per cent of the portfolio. The capital goods sector, a preferred exposure, saw a sharp rally.

But the fund has preferred to step up exposure to the sector, it accounts for 20 per cent of the assets. Even as other funds adopted a cautious stance on IT stocks, Principal Large Cap appears to have taken a contrarian view.

Over the quarter, the fund accumulated stocks such as Infosys Technologies, i-flex Solutions and MindTree Consulting. The fund also made well-timed moves into Reliance Capital and Tata Power and both have delivered impressive returns over the last few months.

The fund has, however, pared exposure to Reliance Industries using the rally in prices.

Fund facts: The fund is managed by Mr R. Srinivasan and the assets under management stood at Rs 323 crore.

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