A change in fund manager seems to have brought about a smart turnaround in Principal Growth Fund's (net assets -- Rs 1,754.8 as September 30, 2004) fortunes.
From being a fund that mostly scored on curtailing volatility in its performance, Principal Growth Fund is now a 'performer' on the NAV return parameter as well.
Principal Growth Fund (PGF) is the flagship diversified equity fund from Principal Mutual Fund (net assets under management as on September 30, 2004 -- Rs 43.4 billion).
While PGF was a reasonable performer over the years, it never quite made the mark, always remaining on the fringe. Then a change in fund management happened and the fund's performance has looked up significantly ever since.
PGF: Combining growth with stability
| Diversified Equity Fund | NAV (Rs) | 1-Mth | 3-Mth | 1-Yr | 3-Yr | SD |
| Magnum Global Fund | 15.29 | 0.9% | 19.8% | 64.0% | 46.4% | 7.13% |
| HDFC Cap Builder (G) | 29.52 | 2.9% | 16.9% | 63.6% | 48.2% | 6.84% |
| Franklin India Prima Fund (G) | 91.46 | 3.0% | 17.4% | 56.9% | 71.4% | 7.68% |
| Birla Midcap Fund (G) | 26.72 | 4.1% | 17.9% | 49.7% | - | 6.83% |
| Reliance Growth Fund (G) | 93.94 | 1.8% | 17.2% | 48.2% | 71.9% | 7.17% |
| UTI - Dynamic Equity Fund (G) | 18.14 | 5.8% | 19.7% | 47.4% | - | 7.52% |
| Alliance Equity Fund (G) | 66.33 | 3.2% | 15.6% | 44.9% | 46.2% | 6.77% |
| HSBC Equity Fund (G) | 31.55 | -0.8% | 11.4% | 43.7% | - | 7.47% |
| Tata Equity Opp. (Reg) | 13.60 | 0.1% | 15.9% | 43.5% | 49.7% | 7.50% |
| Sundaram Select Midcap (G) | 30.23 | 3.6% | 18.4% | 42.8% | - | 7.27% |
| Principal Growth Fund (G) | 23.43 | 3.5% | 14.4% | 39.8% | 42.9% | 5.47% |
(Source: Credence Analytics. NAV data as on Nov 8, 2004. Growth over 1-Yr is compounded annualised)
(Standard deviation highlights the element of risk associated with the fund.)
PGF is among the better funds in the diversified equity category on 3 important parameters:
It has one of the better track records in the industry on curbing volatility, a fact that is highlighted by a lower standard deviation.
It has a superior risk-return ratio, a criterion measured by the Sharpe Ratio. This implies that PGF has rewarded more per unit of risk vis-à-vis the competition.
It has a well-diversified equity portfolio. This is underlined by a lower, 38.3% net asset exposure to the top 10 stocks. In our view, a diversified equity fund must typically have a 40% cap on net assets in the top 10 stocks to restrain volatility in its performance.
While PGF has been consistent in the above 3 parameters, its NAV returns were never worth raving about. The fund usually figured in the second rung of diversified equity funds behind the Templetons, HDFCs and HSBCs of the industry.
However, that has changed over the last few months. The fund has a new fund manager in place -- Shyam Bhatt (earlier with Tata Mutual Fund), who along with Rajat Jain (CIO) now manages PGF.
In our view, Principal Mutual Fund is among the better-managed, process-driven fund houses in the country. While its funds may not necessarily rank high on NAV returns, they do a good job in curtailing volatility in performance, which is underlined by lower standard deviation.
By posting a smart performance on the NAV appreciation parameter, PGF has managed to cross the one hurdle that separated it from the league of top performing diversified equity funds.
If the fund can sustain this smart performance coupled with its process-driven approach; it will emerge as a strong contender to feature in investors' portfolios going forward.