What’s Ailing the Principal LargeCap Growth Fund I in YTD 2016?



Performance evaluation of the Principal LargeCap Growth Fund I

The Principal LargeCap Growth Fund I – Class A (PLGAX) has been a below-average performer for YTD 2016 through August 26. It is placed ninth among the 12 funds chosen for the review.

The past three months have been quite bad for the fund. We have graphed its performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what has contributed to the fund’s poor performance in this year so far.

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Contribution to returns

Information technology stocks have been the largest positive contributors to the Principal LargeCap Growth Fund I – Class A (PLGAX) so far this year. Facebook (FB) is the primary driving force behind tech stocks, and the fund has support from NetSuite (N) and Amphenol (APH). However, LinkedIn (LNKD) has dragged on the sector a bit.

Amazon (AMZN) has helped the consumer discretionary sector become a positive contributor in the year so far. Except for AMZN and Priceline (PCLN), there is no major positive contributor from the sector. However, TripAdvisor (TRIP) and Starbucks (SBUX) have been significant drags on the sector.

The healthcare sector has had the most negative effect on PLGAX in YTD 2016. Alexion Pharmaceuticals (ALXN) stands head and shoulders above any other negative contributor from the sector. Other major detractors include Valeant Pharmaceuticals International (VRX), Bristol-Myers Squibb (BMY), and Allergan (AGN).

However, Intuitive Surgical (ISRG), Danaher (DHR), and UnitedHealth Group (UNH) have mitigated some of the negative contributions from the sector.

While FMC Technologies (FTI) has pulled the energy sector into negative territory, Charles Schwab (SCHW) has done the same to the financials sector.

Investor takeaways

There’s nothing to write home about for PLGAX for this year so far. The large number of stocks in its portfolio has been detrimental to its performance. The consistent presence of negative contributors across the sectors has ensured that returns from all positively contributing sectors have been capped.

The purpose of the fund is to provide a broad-based exposure to large-cap stocks. Investors can pair this with a fund that follows a more focused strategy on alpha generation and is relatively concentrated.

We’ll look at the Wells Fargo Growth Fund – Class A (SGRAX) in the next article.


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