Principal Large-Cap: Hold

Benchmarked to the BSE 100 index, the Principal Large-Cap fund predominantly invests in large-cap stocks.

But the fund has so far been only a mid-quartile performer, leaving investors with plenty of better choices from among other large-cap funds. Besides, it has also not been a great defence in falling markets, something that large-cap oriented funds usually do with aplomb.

Yet the fund has outperformed the BSE 100 over one-, three- and five-year timeframes, garnering 20.5 per cent returns over the last five years.

This performance is on a par with funds such as Franklin Prima Plus and SBI Magnum Equity. Considering the reasonably good long-term returns and a well-balanced portfolio currently, in times of election and growth-related uncertainties, existing investors can hold on to their units.

Performance and strategy Principal Large-Cap has held over 90 per cent in equities across market cycles.

This has helped the fund latch on to rallies at the right time, be it broad-based ones such as the 2009 rise or even the narrower upswings in later years. Right sector choices such as consumer non-durables and automobiles in 2009, pharma, software and banks in 2010-12 also boosted the fund’s returns.

But the scheme hasn’t been as adept at containing losses during market downturns. It doesn’t peg down the risk by safely sticking only to large-caps. In 2011, for example, the fund’s NAV eroded by as much as that of the BSE 100, at 26 per cent. During this time, mid-cap stocks constituted 13 per cent of its portfolio.

Besides, even as bank stocks took a beating in this period, it stuck with its choice of banking as the top sector holding, increasing stakes in the segment up to 18 per cent.

In terms of consistency, the fund’s returns have outdone the benchmark 70 per cent of the time in the last five years on a rolling basis. While this isn’t a bad record, seen in the light that investors choose large-cap funds for lower volatility, better performance is expected.

Portfolio The current portfolio seems well-balanced with a blend of growth and valuation picks. So, even as banks and software remain the top choices, preference for cyclicals, such as auto, auto ancillary and construction, has increased over the last few months. Mid-caps constitute only 2 per cent of the current portfolio.

While multi-baggers that still form part of the portfolio include ITC, stocks such as Ashok Leyland, Federal Bank and Voltas from the beaten down sectors have been added in recent months.

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