Principal Emerging Bluechip Fund: Delivering Sound Returns - Outside View by PersonalFN

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Principal Emerging Bluechip Fund: Delivering Sound Returns
Nov 26, 2021

Principal Emerging Bluechip Fund: Delivering Sound Returns

If you are looking to invest beyond large-cap stocks through a single mutual fund, you have many options such as, Flexi-cap Funds, Multi-cap Funds, Large & Midcap Funds, etc. These funds enable you to reduce exposure to a single market cap and benefit from diversification of the portfolio.

Of these, a Large & Midcap Fund gives you the opportunity to invest in a balanced portfolio of large-cap and mid-cap stocks. When you invest in a Large & Midcap Fund, how much to allocate respectively in large-cap and mid-cap segment will not be a concern. The fund maintains a minimum allocation of 35% of its assets each in large-cap and mid-cap stocks and has the flexibility to increase allocation depending on the outlook.

So if you want to benefit from the stability of large-caps and boost your portfolio returns with significant allocation to mid-caps, you can consider investing in Large & Midcap funds.

Principal Emerging Bluechip Fund is a lesser known Large & Midcap fund that holds a track record of delivering sound returns across time periods.

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Graph 1: Growth of Rs 10,000 if invested in Principal Emerging Bluechip Fund 5 years ago

Growth of Rs 10,000 if invested in Principal Emerging Bluechip Fund 5 years ago

Launched in November 2008, Principal Emerging Bluechip Fund is a Large & Mid Cap Fund that focuses on holding an allocation mix of 50:50 in large-caps and mid-caps. The fund aims to invest in large-cap and mid-cap companies with attractive growth prospects and those that are available at reasonable valuations. With a performance track record of 13 years, Principal Emerging Bluechip Fund has seen quite a few market cycles. While it has outperformed the benchmark and its category peers during bull market rallies, it has at times struggled during bearish phases. Having significant allocation to smaller caps, the fund's performance derailed during the mid-cap and small-cap crash of 2018-19. However, the fund managed to bounce back strongly once the market entered the recovery phase. Even during the recent 2020 market crash as well as the ensuing recovery phase, its performance has been commendable when compared to its benchmark Nifty LargeMidcap 250 - TRI. Over the last five years, Principal Emerging Bluechip Fund has generated returns at 20.5% CAGR in comparison to the benchmark's 19.5% CAGR, thus generating an alpha close to a percentage point.

Table: Principal Emerging Bluechip Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Axis Growth Opp Fund 5,006 54.42 36.62 30.27 -- -- 18.37 0.38
Mirae Asset Emerging Bluechip 21,635 51.81 33.65 28.01 23.78 21.61 21.75 0.32
Canara Rob Emerg Equities Fund 11,774 46.98 33.06 25.07 22.06 18.63 21.09 0.29
Quant Large & Mid Cap Fund 33 61.83 34.34 24.90 18.79 17.78 21.43 0.25
Edelweiss Large & Mid Cap Fund 1,061 49.21 30.07 24.29 20.47 14.93 20.17 0.29
Principal Emerging Bluechip Fund 3,200 51.08 32.89 24.16 20.45 17.73 21.47 0.27
Navi Large & Midcap Fund 139 54.72 27.91 23.37 18.96 -- 21.76 0.26
Aditya Birla SL Equity Advantage Fund 6,201 49.35 29.28 23.05 17.76 15.35 23.01 0.25
Kotak Equity Opp Fund 8,206 40.16 26.32 22.98 18.62 15.30 20.70 0.27
LIC MF Large & Midcap Fund 1,500 44.65 26.77 22.79 19.41 -- 19.62 0.27
Nifty LargeMidcap 250 Index - TRI 49.13 30.34 22.25 19.53 15.17 22.59 0.24
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on November 23, 2021
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Principal Emerging Bluechip Fund stands among the top quartile performers across most time periods. Over longer time periods of 7 years, Principal Emerging Bluechip Fund has delivered substantial alpha of around 2.5-3 percentage points CAGR over its benchmark as well as the category average. On a shorter horizon of 1-year to 3-year periods too it has outpaced many of its peers by a noticeable margin.

The fund has also shown decent stability in its performance. Its standard deviation (21.5%) is lower than the benchmark and competitive to its prominent peers. Principal Emerging Bluechip Fund ranks high in terms of risk-adjusted returns; its Sharpe ratio is among the best in the category. Thus, Principal Emerging Bluechip Fund is capable of generating sound returns that can reward investors appropriately for the level of risk taken.

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Investment strategy of Principal Emerging Bluechip Fund

Belonging to the large and mid-cap funds category, Principal Emerging Bluechip Fund has a mandate to invest minimum 35% of its assets each in large-caps and mid-caps. Principal Emerging Bluechip Fund utilises the bottom-up selection process to pick high potential stocks in the large cap and mid cap domain. The fund prefers to invest in businesses that show potential in earnings growth, run by competent and transparent management, diligent about their capital allocation, and trading at attractive valuations. To enable adequate diversification, Principal Emerging Bluechip Fund seeks to invest across 25-30 industries.

Principal Mutual Fund follows a process-based investment strategy and long term investment philosophy. It applies the 6-Pillar investment framework filter process to pick quality stocks across schemes which is as below:

1. Business Dynamics (Size, scalability, and Longevity)

2. Quality of Growth (Management quality and business model)

3. Operating Matrix (Operational Efficiencies)

4. Capital Allocation (Efficiency and Distribution of Capital)

5. Profitability (Quality and sustainability of profits)

6. Valuation (Price the Value and not Value the Price)

Focusing on the long-term growth prospects of its investments, the fund manager sticks to his convictions and does not churn the portfolio very often. He astutely utilizes diversification to manage the downside risk and holds a well-diversified portfolio of stocks and sectors.

Graph 2: Top portfolio holdings in Principal Emerging Bluechip Fund

Top portfolio holdings in Principal Emerging Bluechip Fund

Principal Emerging Bluechip Fund usually holds a portfolio of 60-65 stocks diversified across market caps and sectors. As on October 31, 2021, Principal Emerging Bluechip Fund held as many as 62 stocks in its portfolio diversified across market caps and sectors. Notably, the fund has capped its top exposure to under 5% of its assets. Large cap names such as, ICICI Bank, HDFC Bank, Infosys, Reliance Industries, Bajaj Finance, HDFC Ltd., Mphasis, and Bajaj Finserv form part of its top 10 holdings along with midcap and smallcap names like Dixon Technologies and TCI Express.

In the last one year, Principal Emerging Bluechip Fund benefitted substantially from its holding in Dixon Technologies, ICICI Bank, Bajaj Finserv, Bajaj Finance, Infosys, Divi's Laboratories. In addition, stocks such as HDFC Bank, TCI Express, Astral, Mold-Tek Packaging, Mphasis have been among the other top contributors to the fund's returns during the same period.

In terms of sectoral preferences, the allocation is currently skewed towards Banking & Finance stocks having a combined allocation of 27.7%. Other sectors such as Engineering and Infotech follow behind with an exposure of around 10.4% and 8.7%, respectively. Auto Ancillaries, Pharma, Consumption, Auto, Petroleum, and Chemicals are among the other core sectors in the fund's portfolio. These top 10 sectors collectively account for nearly 75% of its assets.

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Principal Emerging Bluechip Fund has an encouraging long term performance track record. While its performance in past bear markets was not among the best, its returns in the bull markets have been exemplary. However, the trend has reversed in the recent market crash wherein it has done well to limit downside. Its significant allocation to large cap and mid cap stocks gives it the potential to generate superior returns while maintaining the stability of the portfolio.

In addition, Principal Emerging Bluechip Fund has an experienced fund manager in the form of Mr Ravi Gopalakrishnan who has been instrumental in turning around the fortune of the fund. Accordingly, despite its small size, Principal Emerging Bluechip Fund is well placed to compete with its giant-sized peers and generate market-beating returns in the long run.

Principal Emerging Bluechip Fund is suitable for aggressive investors who can tolerate short-term volatility and have an investment horizon of at least 5 years.

Update on Principal Emerging Bluechip Fund

Sundaram Asset Management Company Ltd. has received SEBI's approval for the acquisition of Principal Asset Management Pvt. Ltd. As per the terms of agreement, Sundaram Asset Management Company (Sundaram AMC) will acquire the schemes managed by Principal Asset Management Pvt. Ltd (Principal AMC).

Accordingly, Principal Emerging Bluechip Fund will be merged with Sundaram Large and Midcap Fund. Sundaram Mutual Fund will also acquire the equity fund management team from Principal Mutual Fund including Mr Ravi Gopalakrishnan who is currently managing this scheme.

We are in close discussion with the fund management team at Principal Mutual Fund and will keep our subscribers updated on any change in our view on this fund. Till then existing investors can continue to hold their existing investment in this fund

PS: If you are looking for quality mutual fund schemes (including Equity-linked Saving Schemes) to add to your investment portfolio, I suggest you subscribe to PersonalFN's premium research service, FundSelect. PersonalFN's FundSelect service provides insightful and practical guidance on which mutual fund schemes to Buy, Hold, and Sell.

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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Author: Divya Grover

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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