Fund Call. Principal Emerging Bluechip: Long-term outperformer

The bellwether indices — the Sensex and the Nifty 50 — have scaled to record highs recently, in line with the rally in the global markets. While large-cap stocks have predominately helped the market rally, mid- and small-cap stocks haven’t participated as much.

Investors who do not have enough risk appetite to invest in pure mid-cap funds can consider betting on the large- and mid-cap segment schemes. Investors can buy units of Principal Emerging Bluechip that has a proven track record of delivering above-average returns over the long run.

Following the SEBI re-categorisation of mutual fund schemes, Principal Emerging Bluechip, from its earlier avatar of a mid-cap fund, moved into the large and mid-cap category. As the fund used to hold large-cap stocks for stability with about 35 per cent allocation, even when it was a mid-cap scheme, it has been easy for it to adapt to the new category.

Here, the large-cap allocation can be 35-65 per cent. Similarly, the mid-cap allocation should 35-65 per cent and the small-cap allocation 0-30 per cent.

The fund used to stay ahead of the mid-cap category and has maintained the stance after the changes as well, and has been among the top quartile of the large- and mid-cap category over longer time-frames (over five-year period). According to the latest factsheet, the scheme has 51 per cent of its assets in large-caps and 35 per cent in mid-cap stocks, while the small-cap allocation is about 10.6 per cent. You can invest through the systematic investment plan (SIP) route to mitigate market choppiness.

Performance and strategy

Principal Emerging Bluechip is benchmarked against the Nifty LargeMidcap 250 TRI. It has outperformed the benchmark over the past one- and five-year periods, and in these periods it is among the top-quartile performers.

Lacklustre performance during 2018 and 2019 due to volatile market conditions has resulted in below-benchmark returns over the past three years. However, the fund has managed to overcome this with a strong performance over the past one year that has outpaced the large- and mid-cap category average return of 6 per cent by 5 percentage points.

Portfolio

The fund has a diversified portfolio with allocation to 64 stocks. The top five stocks take about 22 per cent of the portfolio and top three sectors (financials, chemicals and healthcare) take 47 per cent.. It is overweight on sectors such as financial, chemicals, engineering and services and underweight on healthcare, software, energy and FMCG compared with the large- and mid-cap category.

It takes some cash and debt calls in volatile periods. For instance, in September, it had 5.7 per cent allocation in debt and 94.9 per cent in equity, but upped the equity allocation to 99 per cent in October and reduced the debt allocation.

Banking is the top preferred sector choice with 14.5 per cent allocation. The fund recently increased allocation to HDFC Bank, ICICI Bank and Axis Bank. The fund has upped its stake in bluechip stocks such as RIL, Infosys and TCS over the past one year and this has yielded good returns.

Mid-cap stocks such as Dixon Technologies, Navin Fluorine International, Balkrishna Industries and Atul have boosted the NAV by delivering excellent returns over the past one year.

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