With a judicious mix of large- and mid-cap stocks, Principal Growth Fund made a smart comeback last year. After being in the bottom half of the category through 2003, the fund gained 41.14 per cent in 2004, thus finding a place among the top 10 funds in the category.
It also did well in protecting returns through the initial dull phase of 2004. Hence, Principal Growth has shown its mettle both in bad as well as good times.
Much of Principal Growth's good performance can be attributed to smart sector bets. During early 2004, when the going was tough for equity funds, the fund raised its exposure to automobiles and construction, which provided a cushion. And as the rally in equity markets took off after June 2004, the fund benefited from higher allocation to tech, auto and energy stocks. Infosys, which has been one of its top-10 holdings, has been very rewarding. The fund manager made a smart move by selling the stock in March 31, 2005, when the stock was up. Next month, the stock was down and the fund manager was quick to spot the buying opportunity again.
Currently, the fund is bullish upon sectors like FMCG and automobile. Though it has most of its exposure in large-caps, it has also been fortunate with its mid-cap holdings. Mid-caps like IVRCL Infrastructure, Pantaloon and Blue Dart helped the fund earn good returns. And since the fund's portfolio is widely diversified across 35-45 stocks with a single sector hardly accounting for over 15 per cent allocation, we can expect a lower downside risk here. Principal Growth is one of the least volatile funds with a standard deviation of 6.55.
This year though, a cautious strategy has resulted into 37.91 per cent return for the fund in the year to date as on December 20, 2005, as compared to 45.26 per cent return of average peers.
This article was originally published on December 22, 2005.
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