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Fund Analysis: Principal Growth Fund
Tue, May 17, 2016
Source : Khyati Shah, Citrus Interactive

Principal Growth Fund is an open ended multi-cap oriented equity diversified fund. The fund seeks to achieve long-term capital appreciation through investment primarily in equities. The fund was launched in October 2000 and is benchmarked against the S&P BSE 200 Index. The fund has an AUM of Rs. 348 crores as on March 31, 2016 which has gone down by Rs. 25 crores as compared to last year March 31, 2015 (Rs. 372 crores).

 

Performance


Principal Growth Fund has a decent performance track record of outperforming its benchmark index across all time frames (except YTD and 6 Months) as shown from the table given below. Since inception it has outperformed its benchmark by 0.89 percentage points. However, the fund has underperformed the equity diversified category average in most time periods except in the 5-year period (where the return is almost the same).

 

 

6 Months

YTD

1 Year

3 Years

5 Years

Since Inception

Principal Growth Fund

-3.26

-4.09

-0.63

18.74

12.25

15.36

S&P BSE 200 Index

-2.42

-1.65

-3.02

11.61

7.03

14.47

Category Average

-2.18

-2.68

-0.47

19.45

12.22

NA

Rank

105/156

120/159

70/155

63/141

56/134

NA

Figures are in % as on April 30, 2016; Returns above 1-year in Compounded Annual Growth Rate (CAGR)

 

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark in four out of the last five calendar years. It has beaten its category average in the year 2012 and 2013 but it has underperformed in the year 2011, 2014 and 2015.

 

Scheme Name

2011

2012

2013

2014

2015

Principal Growth Fund

-30.91

46.01

8.31

49.36

2.76

S&P BSE 200 Index

-26.95

30.98

4.38

35.47

-1.48

Category Average

-23.85

34.15

5.43

54.07

3.69

Rank

123/132

15/137

38/141

72/144

84/152

All figures in %

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken higher risk compared to the category median.

 

 

Standard Deviation

Beta

Principal Growth Fund

1.06

0.98

Category Median

0.92

0.86

 

Risk-adjusted Returns: In terms Treynor and Sharpe ratio (measured over last three years), the fund has provided higher risk-adjusted returns than the category median.


Portfolio Characteristics

Sector Concentration:  The fund’s concentration in the top 3, 5 and 10 sectors is significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Principal Growth Fund

31.54

42.61

61.52

Category Median

37.63

50.87

71.34

 

Company Concentration: The concentration of funds in top 3, 5 and 10 companies in its portfolio is significantly lower than the category median highlighting lesser risk of the fund.

 

Top 3

Top 5

Top 10

Principal Growth Fund

15.59

23.42

38.75

Category Median

19.83

28.87

45.54

 

Sector & Company Concentration signifies that the funds maintain a fairly diversified portfolio

 

Number of equity holdings: The fund currently holds 67 stocks in its portfolio (March 31, 2016), which is much higher than the median stock count for the diversified-equity category, which currently stands at 45. Based on equity count the fund runs a highly diversified portfolio compared to its peer set. Over the past five years the fund has always had a diversified portfolio with the number of equity holdings over this period averaging 63.

Thus, based on criteria such as equity count, sector concentration and company concentration, one can conclude that the funds maintain a highly diversified portfolio.

Cash allocation: Its cash allocation at the end of March 2016 was -0.26 per cent. The average cash allocation for last five years is 3.53 per cent. Its maximum allocation to cash over last two years was 6.47 per cent in June 2014 and lowest was -1.05 per cent in July 2014. In 2015 it had an average cash allocation of 2.38 per cent.

Portfolio Insights: The top 5 sectors in the portfolio had an allocation of 42.61% which is lower than the category average of 49.61%. The top 5 sectors include Private sector Banks, IT – Software, Cement & Construction Materials, Pharmaceuticals & Drugs and Refineries.

The fund’s exposure to cyclical stocks currently is 63.6% followed by Services with 16.29% and Defensives with 15.48 %. The Top five holdings are Infosys Ltd., HDFC Bank Ltd., ICICI Bank Ltd., ITC Ltd. and Reliance Industries Ltd.

In the last six months the fund has bought stocks of Bajaj Electricals Ltd., Hero MotoCorp Ltd., Jet Airways (India) Ltd., Kotak Mahindra Bank Ltd., Balrampur Chini Mills Ltd., Aditya Birla Fashion and Retail Ltd., Ambuja Cements Ltd., Hindalco Industries Ltd., Rural Electrification Corporation Ltd., Asahi India Glass Ltd. and Navkar Corporation Ltd.

Stocks of Yes Bank Ltd., Indian Oil Corporation Ltd., Power Finance Corporation Ltd., Cyient Ltd., Aditya Birla Nuvo Ltd., Glenmark Pharmaceuticals Ltd., Bharti Airtel Ltd. and Cipla Ltd. have been dropped from the portfolio.

Stocks of Spicejet, Hindalco Industries, Aditya Birla Fashion & Retail and Ambuja Cements were added in the portfolio but then dropped. 

 

Process

Atleast 65% of the funds will be invested in equities & equity related instruments and upto 35% in Debt and Money Market instruments. The scheme will invest its assets in a portfolio of equity and equity related instruments. The focus of the investment strategy would be to identify stocks which can provide capital appreciation in the long term. Companies selected for the portfolio which in the opinion of the AMC would possess some of the characteristics mentioned below:


– Superior management quality

– Distinct and sustainable competitive advantage

– Good growth prospects and

– Strong financial strength

The aim will be to build a diversified portfolio across major industries and economic sectors by using “Fundamental Analysis” approach as its selection process.

The fund’s expense ratio is 2.45% which is much higher than the category average of 2.32%. Like most equity funds the fund has an exit load of 1 per cent on or before one year from the date of investment. Minimum investment in the fund is Rs. 5,000.

 

Fund Manager

P. V. K. Mohan joined Principal Pnb Asset Management Company as Senior Fund Manager- Equity and is currently Head - Equity. He holds a Post Graduate Diploma in Management from The Indian Institute of Management, Bangalore and degree in Electrical Engineering from REC Calicut. He has over 21 years of experience in equity research and fund management. In his previous assignments he has worked with ICICI Prudential Mutual Fund as Senior Fund Manager (Equity) in PMS , DSP BlackRock Mutual Fund as Portfolio Manager (Equity) in PMS and IL&FS Investments initially as part of a team providing Advisory Services to CIBC Oppenheimer (now part of Blackstone) and later as Fund Manager of IL&FS Mutual Fund.

 

View

The Principal Growth Fund has had a track record of beating its benchmark in most time periods studied. However, the performance looks pale when compared to peer funds. Also, in the recent 6 month period it has underperformed even its benchmark. The fund manager has a good track record. We need to track the performance closely to see any signs of revival.

 

 
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