Morningstar Magazine - August/September 2018 - 65

0K

Principal Blue Chip PBCKX

Principal MidCap PCBIX

Growth of $10K

Growth of $10K

15.56
15.29

16K
$

Principal Blue Chip

15.56
15.29

Growth of $10K

16K
$
14

14

Principal MidCap

13.76 14K
$
13.57

Principal MidCap

12

aggressive growth peers or its benchmark
in rallies, but its 10-year trailing return through
June is top-decile in its category, and its
10-year Morningstar
Risk score is Below Average.
13.76 14K
$
13.57
The fund's
strong downside performance owes
to stock-picking, not cash. "We stay fully invested.
We are not market-timers,"
Nolin says.
12

Morningstar Category

Large Growth

The same goes for Principal Blue Chip. That fund
has not had the chance to prove its mettle
in an extended downturn
yet, but its Morningstar
10
10
Morningstar Risk scores are Below Average. It has also
Morningstar
US Mid Growthheld its own in the up market that's prevailed
US Mid Growth
8
8
earning a 16.9% annualsince its 2012 inception,
07/2015
07/2016 07/2015
07/2017 07/2016
07/2017ized return through June, beating the 15.2%
large-growth category average and in line with its
benchmark, the Russell 1000 Growth.
Morningstar Category
Mid-Cap Growth

Expense Ratio (%)

0.69

Expense Ratio (%)

0.68

Morningstar Rating

QQQQ

Morningstar Rating

QQQQQ

5-Yr Annlzd Total Rtn (%)

15.51

5-Yr Annlzd Total Rtn (%)

13.72

12

12
Morningstar
US Large Growth

Morningstar
10
US Large Growth

07/2016 07/2015
07/2017 07/2016

10

8
07/2017

8

5-Yr Annlzd Total Rtn % Rank 38

5-Yr Annlzd Total Rtn % Rank 26

Source: Morningstar. Data as of 06/30/2018.

Source: Morningstar. Data as of 06/30/2018.

receiving a Yale MBA and was glad to return to
Iowa, where he grew up and attended university.
"Des Moines is a great place to raise a family,"
Rozycki says. "The whole lifestyle is nice."
It's not just Principal's location, he emphasizes.
It's Aligned Investors' position within Principal.
"It's a special setup where we can focus on
investing and not have to jump through hoops to
get approval. We have the latitude to make
investments that we think are going to be great
investments over time."
Inspired by his finance-professor father, Rozycki
went from collecting baseball cards and
stamps to investing in companies at a fairly young
age. From there, he beelined to his current
position. He had an internship at Principal while
at Drake University, landed a job in the equity
area upon graduation in 2001, and joined Nolin six
months later.

Nolin's path wasn't quite as direct as Rozycki's.
He started in credit at Principal, analyzing
private placements. That taught the importance
of downside protection, but he prefers the
upside possibility of equity investing. "It is fun
to understand a business, the people, the
competition. Is it a good deal, a high-probability/
low-risk opportunity?"
Ups and Downs

The funds' performance records demonstrate that
Nolin and team have found an attractive balance
between risk and reward. Morningstar analyst
Tony Thomas, who covers Principal MidCap, cites
the fund's risk/reward profile as a component
of its Positive Performance score and the fund's
overall analyst rating of Silver.
"The fund's focus on high-quality, viably growing
firms has helped it hold its own in rallies, and
hold up better than peers in downturns," Thomas
says. The fund doesn't fly as high as more

Blue Chip is not under Morningstar analyst
coverage, so it does not have an analyst rating, but
it recently made the Morningstar Prospects
list, a collection of lesser-known or newer
strategies that Morningstar's manager research
analysts deem promising.
"Nolin and Rozycki's favorite type of business-
the owner-operator firm with a disciplined capital
allocator at the helm-tends to prove itself
in the downturns that expose poorly run firms.
That is as true of large caps as it is of mid-caps,"
Thomas says. "That is a key part of what
makes Blue Chip an intriguing prospect despite
its relatively short track record."
In addition to sharing the strong process and
management team that contribute to MidCap's
Silver rating, Blue Chip also benefits from
moderate expenses-though its cost advantage
relative to large-cap peers is not as great as
MidCap's within the mid-cap cohort. And
according to SEC filings, Nolin has invested more
than $1 million in both funds, indicating his
own alignment with shareholders.
While Blue Chip is not a replica of its Silver-rated
sibling, it is a reasonable alternative for those
who like the strategy and have room for larger-cap
stocks in their portfolio. K
Laura Lallos is managing editor of Morningstar magazine.

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Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2018
