Canara Robeco Emerging Equities Fund: Creating Wealth through Large and Mid-sized Companies

In conditions where mid-cap stocks are facing severe stress, the presence of the large-cap component in the portfolio of Large &Midcap funds can offset the volatility. On the other hand, during market uptrends, Large & Midcap Funds can outperform Large-cap Funds due to their significant allocation to mid-cap stocks.

Canara Robeco Emerging Equities Fund is one such Large & Midcap Fund that has stood among the top performers across various market phases has created ample wealth for aggressive investors in the long run.

Data as on January 19, 2022
(Source: ACE MF)

Canara Robeco Emerging Equities Fund has delivered substantial returns over its benchmark and the category average across most time periods and stands among top quartile performers over longer time frames. This superior performance has enabled the fund to make it to the list of prime contenders in the Large & Midcap funds category. On a longer 5 year and 7 year time period, the fund has outperformed the benchmark Nifty LargeMidcap 250 - TRI by a CAGR of over 2-3 percentage points. Even on a shorter duration of 1 year, 2 years, and 3 years, the fund has shown a decent lead over the benchmark.

Despite being an aggressively managed fund with a significant allocation to midcaps, Canara Robeco Emerging Equities Fund has registered reasonable volatility, which is lower than the benchmark and some of its prominent category peers. Its Sharpe is much better than the benchmark and the category average, denoting its ability to generate superior risk-adjusted returns for its investors.

Investment strategy of Canara Robeco Emerging Equities Fund

Canara Robeco Emerging Equities Fund is categorized under Large & Midcap funds, and is mandated to hold at least 35% of its assets in large-caps, with a simultaneous allocation of at least 35% in mid-cap stocks. Accordingly, the fund follows a multi-cap portfolio strategy and prefers an allocation of 50:50 in large caps and midcaps. It holds a well-diversified portfolio of 50 to 60 stocks.

Canara Robeco Emerging Equities Fund is a growth-oriented fund where the fund managers look for high growth companies (across sectors) with the ability to generate capital and backed by good management. They give high emphasis to BMV (Business, Management, and Valuation). Accordingly, while evaluating companies, the fund managers emphasise its qualitative features, management, and governance. They also look at quantitative parameters by analyzing the balance sheet and use valuation to determine the weight, i.e., underweight/overweight position in stocks. The core focus of the fund is on cash flow generating businesses.

The fund managers follow a mix of the top-down and bottom-up approach to investing, look at macros to identify favourable sectors, and pick best companies from the sector. They pick high growth stocks from the eligible universe of companies in the large and mid-cap space and make well use of diversification to manage downside risk. In the last one year the fund had a reasonable turnover ratio of around 40% to 60%.

As of December 31, 2021, Canara Robeco Emerging Equities Fund held a well-diversified portfolio of 59 stocks diversified across market caps and sectors. The fund held its top exposure in large-cap names like Infosys, ICICI Bank, HDFC Bank, and Reliance Industries. The top 10 holdings in the fund's portfolio together account for about 34.4% of the total assets. Focusing on long term investment strategy, the target holding period of most stocks in the portfolio is around 2-3 years. The fund managers avoid taking an exposure of more than 2%-3% in single midcap stock due to liquidity concerns associated with stocks in the broader market.

Canara Robeco Emerging Equities Fund has benefitted immensely from its exposure in Minda Industries, Infosys, ICICI Bank, Polycab India, Gujarat Gas, Avenue Supermarts, Bajaj Finance, and Voltas, which have helped it generate significant alpha for investors. The fund also benefitted from its holdings in Gland Pharma, Aditya Birla Fashion and Retail, Navin Flourine International, Reliance Industries, Century Textiles & Industries, among others.

Canara Robeco Emerging Equities Fund's portfolio is currently skewed towards Financials, with Banks carrying around 16.8% weightage in the portfolio, with another 8.5% in Finance stocks, followed by Infotech, Engineering, Pharma, Auto Ancillaries, Retail, Consumption, Chemicals having an allocation of around 4%-10% each. About 73.8% of its portfolio is spread across the top 10 sectors.

Suitability

Canara Robeco Emerging Equities Fund is backed by strong management systems and processes and has delivered promising returns for its investors over longer time periods. The fund maintains a well-diversified portfolio of stocks spread across sectors and balanced across large-cap and mid-cap segment. The strategy has helped the fund deal with the downside risk to an extent.

Moreover, the performance in the past upside market cycles has been far superior to the benchmark as well as the category average. The mix of top-down and bottom-up approach helps the fund managers shift to favourable looking sectors while picking quality high growth stocks from the sector, thus helping it generate higher alpha for investors. Accordingly, Canara Robeco Emerging Equities Fund appears well placed to tide over market volatility in the future.s

Canara Robeco Emerging Equities Fund is suitable for investors with a high risk appetite looking for reasonable exposure across market caps with an investment horizon of at least 5-7 years.

Warm Regards,
Divya Grover
Research Analyst

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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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1. Money Simplified Services Private Limited;

2. PersonalFN Insurance Services India Private Limited;

3. Equitymaster Agora Research Private Limited;

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