Principal Global Opportunities Fund will now focus on emerging markets. It has picked up PGIF Emerging Markets Equity Fund as a vehicle to invest
29-Sep-2006 •Research Desk
Principal Mutual Fund has repositioned the Principal Global Opportunities Fund. The fund, in its new avatar, will now focus upon the emerging markets. The fund house has completely over-hauled its portfolio and currently the fund has only invested in the PGIF Emerging Markets Equity Fund, one of Principal's global offerings.
Principal Mutual Fund had launched Global Opportunities Fund in March 2004 with the objective of investing abroad. But till recently, the regulations permitted funds to invest only in those foreign companies which had a 10 per cent stake in an Indian company listed on a recognized stock exchange in India. Therefore, its universe of stocks was restricted to just about 47 companies. But such restrictions no longer exist.
Therefore, the fund has been able to shift its focus on emerging markets. And unlike, its previous strategy of investing directly into stock abroad, the fund has now chosen PGIF Emerging Markets Equity Fund as a vehicle to invest. Rather than tracking equities in so many markets, the fund house has decided to invest through a fund which already possesses the expertise to invest in these markets. This has resulted in a complete makeover of the portfolio. Earlier, the fund's portfolio used to be dominated by stocks of developed countries like US and Japan. But by way of investing in PGIF Emerging Markets Equity Fund, it has now exposure to countries like South Korea, Brazil, Russia, China and Taiwan among others. PGIF Emerging Markets Equity was launched in February 1998 and had assets worth US $47.9 million at the end of July 2006. The fund invests in regions such as Latin America, Asia, Eastern Europe, the Middle East, and Africa.
What to Expect
Emerging markets generally offer higher return potential than the developed markets, but also happen to be more volatile. Therefore, the changed focus of the Principal Global Opportunities Fund will make it a relatively higher risk- higher return proposition than it has been in the last two-and-half years of its existence so far. For example, Principal Global Opportunities has delivered annualised returns of 27 per cent over the two-year period ending August 31, while PGIF Emerging Markets Equity generated a whopping 95 per cent over the same time period. But the latter has also been a lot more volatile, having a standard deviation of 6 per cent, in comparison to 2.4 per cent of Principal Global Opportunities. Now since it will be investing primarily in PGIF Emerging Markets, its performance should largely fall in line with the latter. One major source of deviation could be the exchange rate movements, since PGIF has US dollar as its base currency.