Principal Emerging Bluechip: Sterling performance across cycles

The fund has beaten its benchmark and peers consistently across time periods

Mid- and small-cap funds have continued to outperform large-cap oriented funds for some time.

While the sharp run-up in these funds calls for caution, investing a portion of your portfolio in these funds can give a kicker to your returns over the long run.

Investors with a long-term horizon, and willing to take risk at this juncture can consider taking exposure in the mid-cap oriented Principal Emerging Bluechip Fund.

The fund has consistently outperformed its benchmark, the Nifty Free Float Midcap 100, as well as the broader index Nifty 500, across all timeframes (one-, three- and five-year periods) by a wide margin.

Principal Emerging Bluechip has always positioned itself in the top quartile of funds that are benchmarked against the Nifty Free Float Midcap 100.

Year-to-date, the fund has delivered 35 per cent returns, outshining the category average return of 27.5 per cent and benchmark return of 27.25 per cent.

Moreover, over the last one- and three-year period-, the fund has beaten the benchmark by 5 to 8 percentage points.

Over the last five years, the fund’s one-year returns have been better than the benchmark about 89 per cent of the time.

To mitigate market volatility, investors can invest through the systematic investment plan (SIP) route.

Performance and strategy

The scheme has a mandate to achieve long-term capital appreciation by investing in equity and equity-related instruments of mid- and small-cap companies and was launched in October 2008. In equities, about 70 per cent of the portfolio is allocated to mid-cap companies and 13.5 per cent to small-cap companies.

The fund follows a growth strategy and sometimes bets on momentum. It also takes cash and debt calls when the market gets overheated.

For instance after the markets corrected in January 2016, the fund had fully invested in equities.

But recently, it has started to increase its allocation towards debt, given the volatility in the market. The scheme invests a small portion in schemes from its own fund house, namely Principal Short Term Income Fund and Principal Cash Management Fund. It also actively takes derivatives exposure.

Banks are the scheme’s top preferred sector, with 12.8 per cent allocation.

Finance and Industrial Products are among the other top three sector choices with the scheme gradually increasing its exposure in the former and marginally trimming exposure in the later, in recent months.

Stocks such as Bajaj Finance, Bharat Financial Inclusion, Muthoot Finance and Dewan Housing Finance Corporation, in which the fund has invested, have been performing well.

Strong performances in the automobiles, auto ancillary and cement sectors have boosted the fund’s performance in the last one year.

The fund also has some large-cap stocks such as Eicher Motors, ICICI Bank and Petronet LNG.

It holds 77 stocks and barring a few stocks, the fund’s exposure to individual stocks is less than 3 per cent, which mitigates risk.

Compared with the benchmark, the fund is underweight on financials, services, healthcare and technology. On the other hand, it is overweight on construction, energy and chemicals sectors. It had recently taken exposure in the industrial capital goods and commercial services sectors and exited telecommunication. Himadri Speciality Chemical, Grasim Industries and BEML entered the portfolio while the stocks of Aditya Birla Nuvo and Gateway Distriparks moved out of the fund’s portfolio.

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