While Principal Growth has shown promise and has had some good years, it really hasn't been able to produce a sustainable performance record. In 2004 it was ranked seventh, but since then it has performed below the category average. Consequently investors are also losing faith in the fund; the assets under management of the fund have fallen by 33.75 per cent between 28 February 2005 and 2007.
The fund manager has been successful in chasing bargains, identifying promising stocks and timing his entry and exit. But there have been some misses as well. The fund has also leveraged on some good sector calls, its allocation to the consumer non- durable sector paid off in the quarter ending March 2006, however its moves in the automobile sector have to some extent backfired owing to a frequent churn and consequent mistiming of price movements over the past year.
Of late the fund has increased diversification by investing in close to 50 stocks on an average and held 57 stocks in December 2006. While the fund manager believes in playing it safe through a larger number of stocks, the strategy has not really translated into results. Over the past two years the fund has failed to protect downside risk.
While the fund claims to adopt a medium risk- medium return strategy, in terms of volatility the fund does not score too well, with the standard deviation of the fund at the higher end of the category average.
Currently the fund seems underweight in the technology and energy space with the funds being channelised in diversified companies and the metals industry.
In a nutshell, the fund has shown flashes of brilliance in the past, but never really out-performed on a sustained basis. The fund needs consistency in performance to rank among the preferred choices in the category of diversified equity funds.
This article was originally published on April 24, 2007.
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