Canara Robeco Equity Diversified Fund: Aiming to Create an ‘All Season’ Portfolio

Sep 03, 2020

Multicap funds invest in a diversified portfolio across sectors and market capitalisation and have the flexibility to switch weightage between these elements based on current market conditions and (potential) future prospects. Large caps fare well even during market downturns, while mid and small caps tend to do well when the economy is growing. This makes multicap funds a good investment proposition to ride the market highs and lows.

However, since the market is expected to be volatile in the near-term and there is uncertainty over which market cap will outshine; constructing the portfolio could be a challenging task for fund managers. If the fund manager is not quick enough to align its portfolio in line with the changing market conditions, the fund may not be able to reward investors with optimum returns.

Therefore, it is important to select a multicap fund that can curb the downside well during depressing market conditions and outpace the market during rallies.

Canara Robeco Equity Diversified Fund (CREDF) is one such multi-cap fund that has demonstrated superior performance and stood strong in the recent market crash.

Graph 1: Growth of Rs 10,000 if invested in Canara Robeco Equity Diversified Fund 5 years ago

CREDF is one of the oldest schemes in the multi-cap funds category. After witnessing prolonged underperformance from CY 2015 to 2017, CREDF came out strongly in the 2018 midcap crash as one of the top performers in the multi-cap funds category. The fund’s large cap orientation and focus towards index heavyweights helped it sustain the midcap crash and ride the large cap rally. CREDF has managed to deliver on the returns front, generating superior risk-adjusted returns for its investors. With a CAGR of around 11% in the last 5 years, CREDF has managed to outperform the benchmark S&P BSE 500 – TRI by a decent margin. An investment of Rs 10,000 in CREDF 5 years back would have been worth Rs 16,829, as against a valuation of Rs 15,738, for the simultaneous investment in the benchmark index.

Graph 1
Data as on September 02, 2020
(Source: ACE MF)
 

Table: Canara Robeco Equity Diversified Fund's performance vis-à-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Parag Parikh Long Term Equity Fund 4,014 28.58 11.17 14.14 15.03 18.94 18.48 0.158
Quant Active Fund 16 29.75 8.47 11.25 13.08 21.11 23.76 0.099
UTI Equity Fund 10,581 16.68 2.27 9.05 10.37 15.72 20.58 0.075
Canara Rob Equity Diver Fund 2,245 15.47 4.85 8.43 10.96 14.74 19.08 0.072
DSP Equity Fund 3,568 9.77 2.79 5.82 10.80 16.73 21.44 0.039
Union Multi Cap Fund 355 13.14 2.95 5.72 8.23 12.06 20.15 0.031
Kotak Standard Multicap Fund 29,361 4.80 0.38 4.30 10.83 17.56 21.14 0.021
LIC MF Multi Cap Fund 287 2.59 0.42 4.25 5.39 10.62 20.23 0.014
SBI Magnum Multicap Fund 8,722 2.80 -0.67 3.26 10.02 17.51 20.77 0.002
ICICI Pru Multicap Fund 5,355 1.57 -4.08 3.07 8.07 14.97 21.80 -0.001
S&P BSE 500 - TRI 7.56 -1.06 4.23 9.48 13.62 21.87 0.019
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 02, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

With a noticeable turnaround in performance, CREDF has managed to generate a significant lead over the benchmark and the category peers, in the last few years. The extra ordinary performance of CREDF in the last couple of years has helped improve its performance track record across time periods. Over the last 2 to 3 year period, the fund has managed to outperform the benchmark by a healthy margin of around 6 to 8 percentage points and stand strong against its popular category peers. Moreover, it has performed at a time when most of its peers found it difficult to even match the market returns.

On risk-return parameters, CREDF has encountered much lower volatility when compared to its peers and the benchmark. The funds superior outperformance over the last couple of years has helped it recover and outpace in terms of risk-adjusted returns as well. Its Sharpe ratio ranks among the best in the multi-cap funds category.

Investment strategy of Canara Robeco Equity Diversified Fund

CREDF is classified under multi-cap funds that have flexibility to hold exposure across market caps without any limit or restriction. The fund is positioned as an 'All season fund' with exposure to industries across market capitalization to remain exposed to lesser volatility compared to other sector funds. It aims to provide an investment opportunity in the 'Best in class' Indian companies with sustainable business models based on the 'Top-down' as well as 'Bottom-up' approach to stock picking with a focus on high growth-oriented stocks that are available at reasonable valuation.

While evaluating companies, the fund management (team) gives importance to 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. The core focus of the fund remains on cash flow generating businesses.

CREDF holds a pre-dominant large cap biased portfolio, where around 75% of its asset is invested into large caps, with around 15-20% in midcaps and up to 5% in small caps. Focusing on long term growth, the fund follows buy and hold investment strategy until the full potential of its holdings are derived.

Graph 2: Top portfolio holdings in Canara Robeco Equity Diversified Fund

Graph 2 Graph 2
Holding in (%) as on July 31, 2020
(Source: ACE MF)

CREDF usually holds a well-diversified portfolio of stocks spread across market caps, but with a large cap bias. As on July 31, 2020, CREDF held as many as 52 stocks in the portfolio. The top 10 stock holdings in the portfolio accounted for nearly 45% of the total assets consisting large-cap names like Reliance Industries, Infosys, HDFC Bank, ICICI Bank, Bharti Airtel, among others.

More than one-fourth of the fund's portfolio is concentrated to Banking and Finance sector, along with substantial exposure in Consumption, Infotech, Pharmaceuticals, Petroleum Products, Auto, Telecom, Oil & Gas, and Engineering having an allocation in the range of 3% to 13% of its assets. The top 5 sectors together occupy about 58% of CREDF's portfolio. While the fund's portfolio is skewed towards cyclicals, it holds substantial exposure to sensitive and defensive sectors as well.

Suitability

CREDF has the ability to deliver strong returns across market conditions at a reasonable level of risk. The fund does not resort to taking aggressive calls for extraordinary returns, but maintains a diversified portfolio of quality stocks with a long-term view. The fund managers decide the weight on each stock, irrespective of their weightage in the index; therefore, its performance may deviate significantly from the benchmark. Furthermore, CREDF's high exposure to financial services could prove risky if the sector comes under pressure; while the presence of mid and small caps may add to the impact of volatility. This makes it suitable for investors with high risk appetite and investment horizon of at least 5 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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