Eyeing high yield companies? Opt for Principal Dividend

The Principal Dividend Yield Fund is meant for investors looking to earn returns through a portfolio of companies that have a high dividend yield, says expert Arnav Pandya. Only those investors who have an investment horizon of three years and are comfortable with periods of uncertainty in between should consider looking at this fund to complete their investment requirement.

Principal Dividend Yield Fund

Nature: Equity oriented open ended

Assets under Management: Rs 102 crore as at end October 2011

Inception: September 2004

Fund Manager: P.V.K Mohan

Analysis

• The fund had the highest exposure to banks with one fifth of the total portfolio in this area at the end of April 2009. This was followed by consumer non durables and finance.  Bank of Baroda was the stock with the highest exposure with a 6 per share in the portfolio. This was followed by REC, Tata Chemicals, Glaxo Smithkline Pharma and Baja Auto. The portfolio turnover ratio of the fund was 1.59 times and it was outperforming its benchmark the S&P CNX 500 over the one year period but not the three year period. Nearly 13% of the portfolio was also in cash and cash equivalents.

• While banks remained at the top of the sector holdings at the end of October 2009 the next spot was held by finance followed by oil and petroleum products. There was a change in the top holdings of the portfolio. ONGC was the top holding followed by Andhra Bank, Bajaj Auto, Castrol, REC and HUL. Cash holdings dropped to nearly 2% from 13% six months earlier. The fund was now an underperformer overall time periods.

• At the end of April 2010 banks was still the top sector followed by software, finance and gas. The cash component once again climbed to nearly 6%. There was another change in the overall portfolio with NTPC being the highest exposure stock followed by HCL Tech, OBC and J& K Bank. The investment strategy of the fund was paying off as it was now an outperformer over the one and three year time period.

• Six months later the exposure to banks went up even further to 25% and this was followed by software and petroleum products. There was a mixture of large and mid cap stocks within the top holdings of the fund. TCS was the top holding followed by Dena Bank, ONGC, Great Eastern Shipping and ITC.  Even though the top holdings keep changing the overall portfolio turnover ratio dropped to 1.13 times and the fund was an outperformer over the one and three year time period.

• The fund maintained its faith in banks as this remained as the top sector holding continued and this was followed by consumer non durable and oil.  ONGC was the top holding followed by ITC, Tata Chemicals, Cummins and NTPC.  The portfolio turnover ratio came down to 0.78 times and was an outperformer over the one and three year time period. Significantly cash and cash equivalents were once again 8% of the overall portfolio.

• Banks, consumer non durables and software continue to be the top three sector holdings for the fund at the end of October 2011. The individual top holdings of the fund look different from the position six months ago as Tata Chemicals occupies the top spot followed by NIIT Technologies, NTPC, Colgate and Cummins. There was still 5% cash holding in the portfolio and it remained an outperformer over the one and three year time period.

• This fund is meant for investors looking to earn returns through a portfolio of companies that have a high dividend yield. Only those investors who have an investment horizon of 3 years and are comfortable with periods of uncertainty in between should consider looking at this fund to complete their investment requirement.

Disclaimer: Views expressed in this article are entirely personal.
arnavpandya@hotmail.com.

For full details of the fund including NAV performance, portfolio, and peer comparison click here.