Canara Robeco Equity Hybrid Fund: Investing Judiciously Between Equity and Debt
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Aggressive Hybrid Funds invest predominantly in equities and equity-related instruments along with meaningful exposure in debt securities (to reduce volatility). This approach provides you with the benefit of the upside potential of equity investment at a lower risk as compared to pure equity funds.
Aggressive hybrid funds could prove to be a worthy long term bet because investors benefit from the stability of debt investment as well as high growth potential of equities. If your investment objective is focused on gains across the universe of stocks, albeit at a lower risk, you can consider investing in an aggressive hybrid fund.
As the equity market continues to trade at all-time high levels the margin of safety appears to have narrowed and therefore some near term volatility may be imminent. So, if you diversify across asset classes it can help to minimise the downside risk.
Canara Robeco Equity Hybrid Fund (CREHF) is an aggressive hybrid fund that stood strong in the recent market crash and participated well in the ensuing recovery phase.
Graph 1: Growth of Rs 10,000 if invested in Canara Rob Equity Hybrid Fund 5 years ago
CREHF is one of the oldest schemes in the Aggressive Hybrid funds category having a track record of over 28 years. The fund has managed to stay ahead of some prominent category peers over longer time periods. Being an aggressive hybrid fund, CREHF’s portfolio majorly constitutes of equity and equity related securities along with significant allocation to debt instruments. CREHF has managed to deliver on the risk-adjusted returns front, and provide some stability to its investors in depressed conditions. While the fund has done well during bull market phases, its performance during bear market phases has been reasonable when compared to the benchmark and the category average. Over the last 5 years, CREHF has appreciated at a CAGR of 15.8% as against 13.7% generated by the benchmark CRISIL Hybrid 35+65 - Aggressive Index. The superior stock picking ability and risk management process has driven the performance of the fund, helping it find a spot among top category performers.
Data as on June 30, 2021
(Source: ACE MF)
Table: Canara Rob Equity Hybrid Fund's performance vis-à-vis category peers
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on June 30, 2021
(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.
CREHF has registered an exceptional performance in the last couple of years, and has managed to generate a significant lead over the benchmark and the category peers. In the last 2 year and 3 year period, the fund has managed to outperform the benchmark by a healthy margin of around 2.5-3 percentage points and stand ahead of its popular category peers. Moreover, it managed to limit the downside in depressed conditions where most of its prominent hybrid peers were struggling.
On risk return parameters, CREHF has encountered much lower volatility when compared to its peers and reasonable when compared to the benchmark. The fund's superior outperformance over the last couple of years has helped it evolve in terms of risk adjusted returns. Its Sharpe Ratio (0.21) ranks among the top in the Aggressive Hybrid funds category.
Investment strategy of Canara Rob Equity Hybrid Fund
CREHF is an Aggressive Hybrid fund that is mandated to invest in a blend of equity and debt instruments to provide optimum returns to the investors. Generally, majority of the fund's assets is invested in equities and a small portion is allocated to debt securities. Depending on the prevailing market scenario, the fund managers adjust the allocation of equity and debt in the scheme, while maintaining a minimum allocation of 65% in equities. Being a hybrid fund, CREHF aims to benefit from the growth opportunities in equity markets as well as generate steady income from debt markets.
CREHF follows a GARP (Growth At A Reasonable Price) style of investing, that combines the tenets of both growth and value investing by finding companies that show consistent earnings growth but available at reasonable valuations. The equity portion of the fund is invested in large-cap & quality mid-cap stocks with an aim to enhance overall returns through capital appreciation, whereas the debt allocation endeavours to limit the downside risk and is actively managed following a blend of 'Accrual' and 'Duration' strategy. The fund invests in high quality corporate bonds and money market instruments in order to minimize the credit risk. However, its exposure to instruments issued by private issuers may be subject to credit risk.
Graph 2: Top portfolio holdings in Canara Rob Equity Hybrid Fund
Holding in (%) as on May 31, 2021
(Source: ACE MF)
CREHF usually holds a well-diversified portfolio of stocks spread across market caps, but with a large-cap bias. As on May 31, 2021, CREHF held as many as 57 stocks in the portfolio. The top 10 equity holdings in the portfolio accounted for nearly 36% of the total assets. Large cap names like ICICI Bank, HDFC Bank, Infosys, Reliance Industries, Axis Bank, TCS, Bajaj Finance, HDFC Ltd., SBI, L&T, etc. appear in the list of its top portfolio holdings. Many of these stocks have been part of the fund's top holding for over two years now.
CREHF has immensely benefited from its exposure to stocks like ICICI Bank, Infosys, HDFC bank, Reliance Industries, Bajaj Finance, Navin Flourine International, etc. that have turned out to be top contributors to its returns in the one year. Divi's Laboratories, Balkrishna Industries, Atul, Ultratech Cement, TCS, Axis Bank, and Asian Paints stood among the other gainers in the portfolio.
CREHF's portfolio is majorly concentrated to Banking and Finance sector which together form around 26% of its assets. It also holds substantial exposure in Infotech, Consumption, Pharma, Engineering, Petroleum, among others. The top 10 sectors together occupied about 60.6% of CREHF's portfolio.
Around 22.4% of its assets is invested in debt instruments, of which about 11.9% is currently allocated to high rated Government securities, along with around 10.6% in Corporate Debt. The average maturity of debt portfolio is around 2-3 years.
Suitability
CREHF holds a superior performance track record over longer time periods. CREHF does not resort to taking aggressive calls for extraordinary returns. It focuses on selective stock picking and maintains a diversified portfolio of quality stocks with a long-term view. This strategy of the fund house has enabled it to keep the risk low and perform well even in uncertain market conditions.
Canara Robeco Mutual Fund employs sound risk management techniques that have helped CREHF do well to curb the downside risk even in difficult conditions. The performance on the upside has been in line with that of the benchmark.
This makes CREHF suitable for investors with moderately high risk appetite and an investment horizon of at least 3 to 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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