Principal Dividend Yield is the second of the six dividend yield funds presently available. The fund is quite young and was launched in September 2004 with the aim of providing capital appreciation by investing predominantly in a well-diversified portfolio of companies that have a relatively high dividend yield.
The strategy of investing in high dividend yielding stocks is a conservative strategy and therefore, can lead to relatively lower returns during the times when the stock markets are scaling new peaks by the day. The situation is no different for this fund, which has under-performed other diversified equity funds by quite a margin.
The fund is well-diversified across stocks but at the sector-level, it has shown great affinity to the consumer non-durables in the last 5-6 months. They currently account for almost 21 per cent of the portfolio. Energy is one of the other favorite sectors of the fund.
The fund prefers to hold significant amount of portfolio in cash. Throughout 2005, the corpus lying in cash and equivalents has averaged about 15 per cent, which is quite high. One of the reasons for this could actually be a dearth of investment worthy high dividend yielding stocks, which may not be surprising during a booming market like this.
This fund may add value during bearish markets because of its conservative strategy.