Run Out of Energy

Principal Emerging Bluechip''s performance is unlikely to attract fresh investors, but those already invested can continue to hold on to it.

Principal Emerging Bluechip had a good launch in the market meltdown year of 2008. However, a change in fund management later did not bode well for the scheme.

Principal Emerging Bluechip has been a gross underperformer vis-à-vis broader markets over the past one year. Its net asset value declined more than 4% during the period when the Sensex and the Nifty returned about 7%. Since January 2011, the scheme generated a negative return of 15.3% compared with a negative return of 10% by the broad market indices.

The scheme had a good launch and was able to buy most of its holdings at cheap valuations. It returned about 13% during the period of October-December 2008, higher than a 4% return of the Nifty and a 2% gain of its benchmark index CNX Midcap during the period.

During the recovery period of 2009, which saw most scrips recover more than what they had lost in the meltdown, the fund topped the charts in mid- and small-cap space, giving over 147% returns in a single year. The broad market indices made about 80% gains in that year.

However, a change in fund management did not bode well for its performance. With less than 20% returns in 2010, the scheme may have outperformed the broader indices a tad, but was well short of peers.

Principal Emerging Bluechip seeks to invest in companies largely in mid- and small-cap segment which are prospective bluechips. Its portfolio includes stocks such as Bank of Baroda, Crompton Greaves, Union Bank of India, Chambal Fertilizers, M&M Financial Services, Lupin, and KEC International. Managing an active portfolio of more than 60 stocks, the scheme has extensively diversified its small asset base of about Rs 260 crore. While this reduces the risk per scrip, which is essential for a fund investing in relatively risky mid- and small-cap space, such a large portfolio also commands synergies of the fund management in terms of extensive research and analysis of a large number of companies, which is cumbersome and expensive. However, the exposure per stock has been restricted to just about 3%.

Most of the scrips that currently form part of the portfolio have been invested into post mid 2010 and are yet to yield returns for the fund. As these are some of the finest scrips on the bourses, one can expect the fund to see a turnaround in the future. These include Voltas, HDIL, Areva T&D, Gammon Infrastructure, PFC, and Gujarat NRE. On the sectoral front, it has maintained a balance between aggressive financial and engineering space and defensive healthcare and fast-moving consumer goods category, allocating an average of 12% equity composition to each of these sectors.

Principal Emerging Bluechip''s current performance is unlikely to attract fresh investors, but those already invested can continue to hold on to the scheme as it may see a turnaround with its fine portfolio blend.

Bakul Chugan Tongia