Principal Growth Fund: Hold

A rejig of portfolio by increasing exposure to in-favour themes and reducing allocation to underperformers has helped Principal Growth Fund turn around in the last two years.

Increasing holdings in export-oriented sectors, such as automobile and ancillaries, software and pharma enabled the fund achieve top quartile performance. It scored over peers such as Reliance Focused Large Cap, ICICI Pru Top 200 and HDFC Top 200 over the one- and three-year timeframes.

But the fund’s five-year return is just a tad lower than the BSE 200 Index, its benchmark.

This is largely on account of the underperformance during the 2008-11 period.

Given its steady improvement, investors could stay invested in the fund.

The addition of stocks in the auto ancillary and pharma space, such as Apollo Tyres, Divi’s Laboratories, and Motherson Sumi aided performance. In addition to a strong demand in the overseas markets, a weak rupee also improved the prospects of the export-focused companies.

Likewise, reducing exposure to underperforming sectors such as financials, oil and gas and metals boosted the fund’s returns. The fund’s NAV jumped 53 per cent during the December 2011-February 2014 period, higher than the 33 per cent gain for the BSE 200 Index.

In the last three years, the fund’s annual rolling returns were higher than the benchmark 64 per cent of the time. Consistent outperformance beginning March 2012 helped the fund improve its rolling returns. In the last two years, its annual returns were better than its benchmark over 90 per cent of the time.

The fund held 40 stocks in its portfolio as of January 2014, with an average market capitalisation of ₹1.2-lakh crore.

It continues to bet on foreign exchange earners, such as auto and its component manufacturers, software and pharma.

It has also increased exposure to select stocks in the mineral, metals and construction space in the last one year.

With a recovery in the economy, these stocks can spice up the fund’s performance.

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