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Large cap funds are traditionally believed to be safer in a falling market. But this may not be true of all such funds. Principal Large Cap fund is an example of how market cap bias alone may not alter a fund’s risk profile completely. Though the fund has bettered its benchmark in recovery phases, it has not been successful in containing downside in falling markets. Given the strong rally in the last one year and likely consolidation in the near term, investors can use this opportunity to book profits in the fund.
Even as the fund struggled to limit downside in downturns, peer funds such as Franklin India Bluechip and ICICI Pru Focused Bluechip Equity have shown better consistency in beating benchmark returns across different market cycles. Investors may hence prefer stable large cap funds with a proven track record of weathering downside risks in a volatile market. Principal Large Cap clocked an impressive 173 per cent gain during the December 2005-07 rally, higher than the 140 per cent jump in the BSE 100 Index. But the fund performance slipped post the January 2008 market slide. During the period January 2008-February 2009, the fund lost over 60 per cent compared to 58 per cent fall in the benchmark. Similarly, in the recovery phase between March 2009 and November 2010, the fund clocked 156 per cent gains, higher than the 128 per cent jump in the benchmark. But it did not succeed in sustaining performance and fell more than the benchmark during the 2011 slide. Sector bets and stock choices that didn’t pay off weighed on fund performance. For instance, higher slant towards cyclical themes such as materials and industrials and lower allocation to defensives such as consumer goods and pharma between December 2007 and February 2009 widened its underperformance.
Being completely invested in equities during such volatile times also caught the fund on the wrong foot. Between June 2008 and February 2009, the fund’s average cash holding was 4.5 per cent .
Even as the market continued to favour defensive sectors, the fund cut its exposure to consumer goods, which impacted performance beginning January 2012.
Performance
On a one-, two- and three-year basis, the fund has made gains lower than the benchmark. But, on a five year basis, the fund managed to deliver returns higher than the benchmark. Across all time periods, the fund has tended to lag behind the category average.
The fund currently holds 34 stocks in its portfolio. The fund is heavy on banking stocks which account for nearly a fifth of its assets.
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