Fund Call. Principal Emerging Bluechip: Bluechips give it safety and stability

Starting the year on a weak note, the market staged a recovery in March and has since been trending higher.

But of late, geo-political concerns and other global events such as the US presidential elections, possible Fed rate hike and volatility in crude prices have kept the market on tenterhooks.

But then, bouts of volatility may provide a good entry point for long-term investors.

If you are a high-risk investor looking to build wealth in the long term, investing a portion of your surplus systematically in a mid-cap fund with good track record can add spice to your portfolio returns. Principal Emerging Bluechip is one such fund.

The fund has been able to consistently outperform its benchmark — the Nifty Free Float Midcap 100 Index.

Over the last five years, the scheme’s one-year returns have been better than the benchmark almost 80 per cent of the time.

The fund has delivered annual returns a little over 30 per cent since inception.

The fund, however, went through a rough patch during the 2011 market fall, when it underperformed both its benchmark and category.

But it managed to weather bouts of volatility in 2013. Though the benchmark lost nearly 27 per cent during the January-August 2013 period, the fund managed to curb the fall at less than 21 per cent.

Besides sector and stock choices, the fund typically holds more large-cap stocks in its portfolio, compared to its benchmark.

Currently, about 45 per cent of the scheme’s assets are parked in large-cap stocks.

Stocking up on relatively less volatile large-cap stocks has stood the fund in good stead during such turbulent phases.

At the same time, the fund has also made the best of market rallies.

The scheme’s flexibility to move into mid-caps when the tide turns has helped it outshine its benchmark in market rallies. Consider this. During the market rally from the lows of November 2008 until 2010, the fund’s NAV leaped 3.5 times, compared to the 2.6 times jump in the benchmark.

Even during the latest pull-back rally, which commenced in September 2013 and lasted until March 2015, the fund’s NAV zoomed 2.5 times. Increasing exposure to themes such as auto and logistics helped performance.

The fund’s expense ratio, at 2.69 per cent, is higher than peers’, such as HDFC Mid-cap Opportunities (2.14 per cent) and Franklin India Smaller Companies (2.43 per cent).

The scheme had 67 stocks in its portfolio as of August 2016. In the past year, the fund has increased exposure to consumer goods, consumer durables and oil and gas stocks. It has pruned exposure to companies in the auto ancillaries and construction space.

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