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Is Principal Small Cap Growth I Institutional (PGRTX) a Strong Mutual Fund Pick Right Now?

There are plenty of choices in the Small Cap Growth category, but where should you start your research? Well, one fund that may not be worth investigating is Principal Small Cap Growth I Institutional (PGRTX). PGRTX bears a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Small Cap Growth funds is an area filled with options, such as PGRTX. These funds tend to create their portfolios around stocks that sport large growth opportunities and market capitalization of less than $2 billion. The companies in these portfolios are usually on the smaller side, and are in up-and-coming industries and markets.

History of Fund/Manager

Principal Financial Group is based in Des Moines, IA, and is the manager of PGRTX. Principal Small Cap Growth I Institutional made its debut in September of 2002, and since then, PGRTX has accumulated about $152.43 million in assets, per the most up-to-date date available. Randy L. Welch is the fund's current manager and has held that role since June of 2009.

Performance

Of course, investors look for strong performance in funds. PGRTX has a 5-year annualized total return of 9.81% and is in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 13.5%, which places it in the middle third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 9.33%, the standard deviation of PGRTX over the past three years is 15.13%. The fund's standard deviation over the past 5 years is 15.26% compared to the category average of 9.15%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

One cannot ignore the volatility of this segment, however, as it is always important for investors to remember the downside to any potential investment. PGRTX lost 55.42% in the most recent bear market and outperformed its peer group by 2.29%. This means that the fund could possibly be a better choice than its peers during a down market environment.

Investors should note that the fund has a 5-year beta of 1.17, so it is likely going to be more volatile than the market at large. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. The fund has produced a negative alpha over the past 5 years of -2.53, which shows that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Investigating the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is principally on equities that are traded in the United States.

Currently, this mutual fund is holding 97.3% stock in stocks, with an average market capitalization of $4.02 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Other
  3. Industrial Cyclical
  4. Health

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, PGRTX is a no load fund. It has an expense ratio of 1.02% compared to the category average of 1.31%. PGRTX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $0, while there is no minimum for each subsequent investment.

Bottom Line

Overall, Principal Small Cap Growth I Institutional ( PGRTX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and lower fees, Principal Small Cap Growth I Institutional ( PGRTX ) looks like a somewhat weak choice for investors right now.

Don't stop here for your research on Small Cap Growth funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare PGRTX to its peers as well for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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